What is the difference between Fixed Rate Mortgages and Adjustable Rate Mortgages?
Fixed Rate Mortgages are loans in which the interest rate never changes during the life of the loan. As a result, the principal and interest payment also does not change during the life of the loan. The benefit of a fixed rate mortgage is you can lock your interest rate for as long as 40 years to protect yourself against rising interest rates.
Adjustable Rate Mortgages (ARM), also known as variable rate mortgages, are loans in which the interest rate will adjust up and down according to an index rate. Initial ARM rates are generally lower than fixed rates. There is a predefined cap that limits how high the interest rate can adjust. ARMs are beneficial for those who do not plan to stay in their homes for a long time, for those who do not qualify for higher fixed rates and for those who are comfortable with fluctuating payments.
How do adjustable-rate mortgages work? There are many types of adjustable-rate mortgages, but all have some common features. One common feature of adjustable-rate mortgages is an interest rate change that occurs after a stipulated number of payments have been made. The interest rate can increase or decrease depending on the market rate (index). Typically, the interest rate change is based on a predetermined index value and a margin. If a customer currently has an interest rate that is pending adjustment, the new rate would be calculated by adding the current index rate and a margin. For example, if the customer’s current rate was 6.000% with a 2.000% margin, the new rate would be determined by adding the current index rate (for example, 5.000%) to the margin. In this example, the new interest rate would be 7.000%. The maximum amount the interest rate can change during any adjustment period is usually fixed. This maximum adjustment is called the annual rate cap. Adjustable-rate mortgages also have a lifetime rate cap, preventing the interest rate from exceeding a predetermined rate.
What are escrow accounts and how much do I need in my escrow account? Escrow accounts are savings accounts established for the customer by the bank for the purpose of paying taxes, insurance and other payments associated with the ownership of your home. The bank is responsible for the timely disbursement of escrow funds to pay the bills as they come due. The bank will collect funds for placement into your escrow account with periodic payment for principal and interest. An escrow account has sufficient funds when there is enough savings to pay all bills when they come due. It is common practice for the bank to require an escrow cushion or extra savings deposit totaling two months of the total estimated annual payments. The cushion is kept in the escrow account by the bank to ensure that if the cost of any escrowed item were to increase in the future, there would be sufficient funds to pay all bills as they come due.
How do I get pre-approved for a mortgage? Pre-approval is easy, convenient and, best of all, free. Simply follow the Apply Now link on the navigational bar and choose the pre-approval application that suites your needs. Just fill out the quick application online and submit. Normally, you should receive a decision within one to three business days.
What documents will typically be requested when I make application for a first mortgage loan?
For most borrowers, you will need to provide pay stubs that cover a 30 day period, complete copies of your most recent bank statements, and the purchase contract on the home you are buying. If you are self-employed, you may also be required to provide your personal tax returns. Documentation requests vary by loan type. For more information, contact your loan officer
How can I obtain a copy of my credit report? There are currently three major credit bureaus from which a creditor can access your credit information.
Institutions report credit information to these three credit bureaus on a monthly basis, providing updates on consumers who are current or delinquent on their payments (as well as other pertinent account information). Three major credit bureaus are reported to separately. Lenders obtain a report from each of the three bureaus in order to gather a full history on each customer.
You can obtain a copy of your credit report by visiting the following website:
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What is the difference between APR and interest rate?
The APR (Annual Percentage Rate) reflects the cost of your mortgage loan as a percentage of the net amount borrowed. It incorporates the cost to obtain the loan, such as lender fees, discount fees and loan origination fee. The interest rate is the actual note rate.
What is the difference between 'locking' and 'floating'?
If you choose to 'lock-in' on a particular rate, you will receive protection for a specified period of time from financial market fluctuations in interest rates. If you choose to 'float' your rate, it will fluctuate with the market and will be subject to both upward and downward movements in the market.
What is Loan-to-Value (LTV)?
LTV is the ratio between the loan amount and the appraised value or the sales price, whichever is lower. A loan amount of $80,000 with a purchase price of $100,000 would be an 80% LTV.