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How will I know how much house I can afford? Answer |
| 2. |
What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer |
| 3. |
How is an index and margin used in an ARM? Answer |
| 4. |
How will I know which mortgage is best for me? Answer |
| 5. |
What does my mortgage payment include? Answer |
| 6. |
How much cash will I need to purchase a home? Answer |
| 7. |
What is a Rate Lock? Answer |
| 8. |
What is the Annual Percentage Rate (APR) and why is it different than my interest rate? Answer |
| 9. |
Why must I pay for title insurance when I refinance, since I already have a title policy? Answer |
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How will I know how much house I can afford? |
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Generally speaking, you can purchase a home with a value of two or three times your annual household income. However, the amount you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. You may also be able to take advantage of special loan programs for first-time buyers to purchase a home with a higher value. Give us a call, and we can help you determine exactly how much you can afford. |
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What is the difference between a fixed-rate loan and an adjustable-rate loan? |
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With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change. There are advantages and disadvantages to each type of mortgage. We can help you as you make your decision. |
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How is an index and margin used in an ARM? |
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An index is an economic indicator that lenders use to set the interest rate for an Adjustable Rate Mortgage. Generally, the interest rate is a combination of the index rate and a pre-specified margin. Three commonly used indices are the One-Year Treasury Bill, the Cost of Funds of the 11th District Federal Home Loan Bank (COFI), and the London InterBank Offering Rate (LIBOR). |
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How will I know which mortgage is best for me? |
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There is no simple formula to determine which mortgage is best for you. This choice depends on a number of factors, including your current financial picture and how long you intend to keep your house. We can help you evaluate your choices and help you make the most appropriate decision. |
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What does my mortgage payment include? |
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For most homeowners, the monthly mortgage payments include three separate parts:
Principal: Repayment on the amount borrowed
Interest: Payment to the lender for the amount borrowed
Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to each taxing entity and property insurance company. |
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How much cash will I need to purchase a home? |
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The amount of cash you will need depends on a number of items. Generally speaking though, you will need:
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What is a Rate Lock? |
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Lenders will quote mortgage terms to you at the time you make application for a loan. However, most loans will not close until some time after application, 30 days on the average. Loan terms can change drastically over a 30-day period, depending on what happens in the markets. When a lender quotes loan terms to you, if the lender guarantees that those terms will not change between application and closing, those terms are considered "locked". It is important to have any rate lock guarantee provided to you by a lender be committed in writing to you including explanations of how those terms could change, if at all. You should be aware that locked terms usually mean that the rate and points you lock in cannot increase but they also cannot decrease unless the lender specifically offers that option in the written agreement. Loan terms that are not locked are considered "floating" and are subject to whatever changes are required by the market. Most lenders will not offer a rate lock to you until you make formal application to purchase or refinance a particular property. Some lenders may require payment of a fee to lock your loan terms. |
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What is the Annual Percentage Rate (APR) and why is it different than my interest rate? |
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The Annual Percentage Rate is a calculation of the total cost of financing expressed as a percentage. Included in the calculation are the interest rate, any points you pay (whether origination or discount) and any fees you pay either to the lender or to a third party as a requirement of the loan. Typically fees you pay are included if the fee would not have been incurred had you paid cash for the home.
This disclosure requirement was established by the Federal Truth-in-Lending law to provide consumers a tool to compare the cost of lending between lenders. Unfortunately, the law is subject to interpretation by lenders as to what fees should be included in the calculation and, therefore it is not a perfect tool for comparison.
The Annual Percentage Rate has no affect on the monthly payment you will make on your mortgage. |
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Why must I pay for title insurance when I refinance, since I already have a title policy? |
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Title insurance protects the new lender (even if the new lender is the same as the current lender) against any claims against your title since the last policy was isssued. These claims could come from contractors that performed work on your home, or lenders claiming a lien against your property, encroachments to property lines or easements from improvements made by you or a neighbor, etc. In most cases when you refinance, your existing mortgage is paid off and a complete new loan is created. Since the existing lien is being paid, the new lender wants assurance that their lien will be in first position. Some states offer an abbreviated form of title insurance or a discount on the cost of a policy depending on when the last policy was isssued.
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