Mortgage Library

Loan Program Choices
Learn about your options in choosing a loan program that is best for you.  Whether you want to qualify to buy more home, get the lowest rate or shorten your term, we have the answers. This section also includes information about Arms, Fixed Rate Loans and Short Term Fixed ARMS.

About Interest Rates
Get educated about quotes, locks, floats, points, rate sheets, and other helpful lingo to help you get the best rate for your particular program. This section includes information about the factors affecting your interest rate, determining if you should pay points, and info about adjustable rate mortgages.

FAQ's

Home financing is world unto itself.  If you are buying your first home or just have not been in the housing market for a while, here are some common questions many people ask.

We hope that these questions answer some of yours.

How can I compare the rates by different lenders?                                                                 There are three considerations in determining the price of a loan. These considerations are the contract rate quoted, the amount of points and/or origination fees associated with that rate, and the length of time the lender will promise to deliver that price to you. For example, two lenders could quote to you a 30-year fixed rate at 8%. However, one lender will quote 1.5 points and guarantee that day’s rate for 30 days. The other lender will quote only 1 point but will not guarantee the rate at all. The rate could easily change before you have a chance to close the transaction. So which is the better price?

What are “Points”?
A point is 1 percent of the loan amount. "Discount points" generally vary inversely with the rate quoted -- that is, the lower the rate quoted, the higher the amount of points charged. Discount points are used to adjust the yield on the loan to the institution providing the money. Origination points, such as is common for FHA and VA loans, are generally charged by the lender to offset the lender costs of administering the transaction. 

Is a “no cost loan” really no cost?
There is no free lunch, even in mortgages. Every real estate financing transaction has costs for processing the application, appraising the subject property, administering the transaction escrow, securing title insurance, etc. In a typical "no-cost loan" the lender agrees to pay all of the costs of the transaction for the borrower in exchange for the borrower paying a higher price for the loan. Depending on the individual borrower's circumstance, this may or may not be a "good deal."

What is a FICO score?
In order to streamline the decision-making process, the lending industry has developed a system, which scores the borrower's credit history. The score is seen as predictive of the borrower’s ability and willingness to repay the loan. Such scoring gives the lender the ability to give the borrower a rapid credit decision by using automated underwriting software currently available. Few lenders base their entire credit decision on the score, however. Lower FICO scores usually trigger a real live underwriter review of the loan application.

If I have some credit problems in the past, can I still get a home loan?
Yes, many lenders like Nelmstar LLC specialize in financing for people who have had credit difficulty.  Get a copy of your credit report and get negative entries removed by writing to the credit agency.  They have 30 days to verify the information or remove it. 

What is mortgage insurance? How does it differ from homeowner’s insurance?
Mortgage insurance, often called "private mortgage insurance" or PMI for short, insures the lender against losses which could be incurred should the borrower not make payments and the loan go into default. It is this kind of insurance which allows lenders to make loans where the borrower's down payment is less than 20%. Conceptually, it is patterned after the federal government’s FHA home loan programs in which the federal government guarantees lenders against the loss of default for loans on properties on which the borrower puts down as little as 3% of the purchase price.

The term "mortgage insurance" is also used for those types of life insurance policies which are used to pay off the balance of the mortgage in the event of the borrower’s death. Yes, it is confusing.

Loan Program Choices

Fixed Rate Loans

10 Year Fixed
A loan term of 120 Months and the rate remains the same for the life of the loan. 

15 Year Fixed
A loan term of 180 Months and the rate remains the same for the life of the loan

20 Year Fixed
A loan term of 240 Months and the rate remains the same for the life of the loan

25 Year Fixed
A loan term of 300 Months and the rate remains the same for the life of the loan

30 Year Fixed
A  loan term of 360 Months and the rate remains the same for the life of the loan

40 Year Fixed
A loan term of 480 Months and the rate remains the same for the life of the loan

Standard ARMS Loans and Differences

A few options are available to fit your individual needs and your risk tolerance with the various market instruments.

ARMs with different indexes are available for both purchases and refinances. Choosing an ARM with an index that reacts quickly lets you take full advantage of falling interest rates. An index that lags behind the market lets you take advantage of lower rates after market rates have started to adjust upward.

The interest rate and monthly payment can change based on adjustments to the index rate.

6-Month Certificate of Deposit (CD) ARM
This program has a maximum interest rate adjustment of 1% every six months. The 6-month Certificate of Deposit (CD) index is generally considered to react quickly to changes in the market.

1-Year Treasury Spot ARM
This program has a maximum interest rate adjustment of 2% every 12 months. The 1-Year Treasury Spot index generally reacts more slowly than the CD index, but more quickly than the Treasury Average index.

6-Month Treasury Average ARM
This program has a maximum interest rate adjustment of 1% every six months. The Treasury Average index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators.

12-Month Treasury Average ARM
This program has a maximum interest rate adjustment of 2% every 12 months. The Treasury Average Index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators.

12 MAT – Pay Option ARM                                                                                                          The 12 MAT pay option ARM is a product that allows the a borrower the flexibility of three different payment options on a month to month basis.  The 12 MAT is priced using an index the monthly treasury average.  This loan can have negative amortization, which means you can accrue a higher payoff because the payment made does not equal the amount of interest charged.

30 Year Fixed For 3 (3/1 ARM)
This Program has an interest rate that remains the same for the first 36 months.  At the conclusion of the first 26 months the loan typically has a rate adjustment of 1 or 2% every 12 months.

30 Year Fixed For 5 (5/1 ARM)
This Program has an interest rate that remains the same for the first 36 months.  At the conclusion of the first 26 months the loan typically has a rate adjustment of 1 or 2% every 12 months.

30 Year Fixed For 7 (7/1 ARM)
This Program has an interest rate that remains the same for the first 36 months.  At the conclusion of the first 26 months the loan typically has a rate adjustment of 1 or 2% every 12 months.

About Interest Rates

Research Rates
Begin by checking out current interest rates and rate movements when shopping for a mortgage. Mortgage rates generally rise and fall along with Wall Street securities and generally reflect the overall direction of interest rates. By keeping an eye on mortgage market trends and key economic indicators, a borrower has a better chance of obtaining interest rate savings.
 

What is APR?
A tool used to compare loans across different loan programs is the Annual Percentage Rate (APR). The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. It is designed to represent the true cost of the loan to the borrower, expressed in the form of a yearly rate. The purpose is to prevent lenders from hiding fees and upfront costs behind low advertised interest rates.

One confusing aspect of APRs is that the APR on 15 year loans will carry a higher relative rate due to the fact that the points are amortized over the 15 year term rather than the 30 year term. When a Regulation Z (the mortgage company’s disclosure of cost for the loan) is prepared for a buyer/borrower, the prepaid interest is also included in the APR calculation.

Even lenders admit it is confusing since it includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. The rules for calculation of this number have not been clearly defined, so APRs vary from lender to lender and from loan to loan, depending on which types of fees and charges are included.

In addition, the APR model is flawed in that when a product is variable and tied to a market index, the index is assumed to never change. This obviously is an invalid assumption that can lead again to a number, which in fact cannot be compared, from one quoting source to another.

Finally, the APR won't tell you anything about balloon payments and prepayment penalties or how long your rate is locked for. You can use APRs as a guideline to shop for loans, but you should not depend solely on the APR in choosing which loan is best for your needs.

Meeting with a Lender
You may prefer to meet with the mortgage company before house hunting to determine in advance how much you can afford and the mortgage amount for which you can qualify. This step is called pre-qualification and can save you time and trouble by making certain you are looking in the correct price range.
 

Lock in Your Rate
A lock, also called a rate lock or rate commitment, is a lender's promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan application is processed. Depending upon the lender, you may be able to lock in the interest rate and number of points that you will be charged when you file your application, during processing of the loan, when the loan is approved, or later.

Shorter loans, such as a 20 year or 15 year note, can save you thousand of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower interest rate than a fixed rate mortgage, but your payments could get higher when the interest rate changes.

A larger down payment greater than 20% will give you the best possible rate. With a down payment of 5% or less, you should expect to pay a higher rate as you are starting with less equity as collateral. If you've got the cash now and want to lower your payments, you can pay points on your loan to lower your mortgage rate. It's a simple concept, really. In exchange for more money up front, lenders are willing to lower the interest rate they charge, cutting the borrower's payments. Closing costs are fees paid by the lender, if you do not want to pay all of the closing costs, expect a higher rate, which will pay the lender additional interest over the life of the loan.

Your credit quality and debt-to-income ratio affect the terms of your loan through your FICO Score. If you have good credit and your monthly income far surpasses your monthly debt obligations, you will get approved at a lower interest rate. However, if your monthly income barely covers your minimum debt obligations, even if you have a good credit report, you will not receive the lowest available interest rate.