1.What are fixed and adjustable rate mortgages?
FIXED RATE MORTGAGES
FIXED RATE MORTGAGES
A fixed rate mortgage is a mortgage loan that adheres to a fixed rate of interest for the entire term of the loan. Lenders usually offer 15 year or 30 year fixed rate mortgages. The greatest advantage of a fixed rate mortgage is that the homeowner will not have to worry about fluctuating interest rates. The stability offered by fixed rate mortgages is preferred by many homeowners since they can chalk out a repayment schedule without the fear of increasing interest rates.
ADJUSTABLE RATE MORTGAGES
Adjustable rate mortgage (ARM) loans are good deals for homeowners who wish to limit their initial investments. These mortgages offer a lower initial investment, though the rate might shoot up based a market index and a margin after the first reset period. The margin is predetermined, and is typically between 2.75% and 3%. The market index for ARMs could be an average one year treasury bill index (published in the Wall Street Journal). However, there are limits that homeowners can set to reduce the volatility of interest rates in any given adjustment period and during the entire loan period. These are known as periodic rate caps and lifetime rate caps.
2. What is a mortgage broker? What are the pros and cons of using a mortgage broker?
A mortgage broker is a company that markets other lenders products, similar to an independent insurance or travel agent. It acts as an intermediary between mortgage borrowers and lenders, by passing along paperwork from the borrower to the lender for approval.Advantages offered by mortgage brokers –
- Mortgage brokers are offered mortgage products and services at wholesale prices and market these products and services to consumers. The advantage of this is that a broker can offer the lowest rates because they have all the information about lenders offering the best prices on that particular day.
- A broker has the option to operate on lower margins than other banks or lenders.
- A broker has access to many different programs than any one lender will provide.
- A broker may be able to offer loans that one lender cannot offer because they may have a lender that offers programs for your situation.
USA-Mortgage.com is a full service mortgage broker. The only way this impacts you is that your loan will be owned and serviced by the lender (not USA-Mortgage.com) who makes the loan. USA-Mortgage.com does all of the processing and customer service of your loan all the way through closing. It is our name and reputation on the line every day and we want to provide a single source for you to work with. That way we can have control of the service you receive and we can assure your satisfaction. Many other internet mortgage providers just pass your name off to another lender in exchange for some broker fees or marketing fees.
One of the cons of using a mortgage broker is that often their level of service is influenced by their interactions and service levels provided by the lenders. That is why we choose to partner with only a few of the top national lenders so that we can work on providing seamless customer service to our customers.
3. How does an interest rate lock work?
An interest rate lock protects the borrower from increasing interest rates before the loan is closed, though the borrower has no legal obligation to the loan until it closes. At USA-Mortgage.com, an interest rate lock guarantees that you pay the specified interest rate for 30 days from the date your application is received (unless you have specifically asked your loan officer for a 15 day lock). However, if interest rates fall, we cannot re-lock at the lower rate for you. So, if you are comfortable with your interest rate you can be assured that the interest rate will be available when you close.
The purpose of a lock is to provide an opportunity for you to arrange to complete your mortgage and real estate transactions before the lock expires. This allows you to budget, plan your affordability, and purchase a home without having to worry about rising interest rates before you actually close on your loan. Interest rate locks provide you with the security you need to close your loan. However, since the risk of increasing rates is absorbed by the lenders on your behalf, they charge for this. For instance, a 60 day lock interest rate is slightly higher than a 30 day lock interest rate. Therefore, when you shop for mortgages, a 7% interest rate with a 60 day lock is a better deal than a 7% interest rate with a 30 day lock.
4. Am I guaranteed the rate I apply for?
Yes, once your application is received by us, a lock for that interest rate is established. If you submit your application electronically or via fax, you will be locked in at the rates published on the site at the time your application is submitted. If you mail your application, your rate will be locked at the rate that is published on this site at the time we receive your application. You will receive a confirmation via email and in your loan approval package. Your interest rate will be guaranteed as long as you are approved and submit your information prior to any deadlines to complete your loan.
We typically require that you submit the requested information within 10 days of having received your approval package. If it is not possible to submit your information within this time frame, just make arrangements with our customer service department via live conference, email, or call our 800 number.
5. What if I forgot my password to check the status of my loan?
If you forget your password for checking the status of the loan, you will be provided with a new password after your identity has been verified. You may send an e-mail or call on our 800 number for this purpose.
6. Why do I need (private) mortgage insurance, MI or (PMI), if my down payment is less than 20%?
The cost of mortgage insurance (MI), or private mortgage insurance (PMI) depends on the size of the down payment and the loan. This type of insurance is designed as a win-win situation for the homeowner and the lender. While the homeowner pays the premium, the lender is the beneficiary. By paying PMI, homeowners can purchase a home without large down payments.
Many homebuyers do not have savings or reserves that are equal to 20% of the value of the home the wish to purchase. As they try to save the funds to buy their home, the property rates keep rising, and their savings continue to fall short of the required down payment amount.
Lenders, on the other hand, do not like to lend money at low interest rates for more than 80% of the home value. This is because lenders need to be protected in the event of default or foreclosure. They want protection against decreases in the housing values and they need to ensure that they can sell the property quickly, still recouping their loan amount.
It has been established that borrowers who have at least 20% equity in their homes default less often than borrowers with less equity. Mortgage insurance companies assume the lenders’ risk on the loan amount above 80% of the home value. This insurance has a cost associated with it, which is your monthly PMI or MI payment that is included in your mortgage payment.
Mortgage insurance has served its purpose by providing more people the ability to purchase homes at low interest rates by reducing the lender’s risk.
7. Can I ever get rid of mortgage insurance once I have it?
Yes, you can cancel mortgage insurance and save the amount equal to your monthly premium without refinancing. You can get your private mortgage insurance requirement removed from the lender if:
To make sure that you do not continue paying for private mortgage insurance even after it ceases being essential, you can contact the company that you send your monthly payment ("servicer"). Request the company to send you a letter explaining your lender’s policies and procedures regarding the cancellation of mortgage insurance. This letter should explain when they no longer require this insurance and what specific steps you must take to cancel the insurance.
Once you have ensured that your situation meets the lender’s requirements of elimination of mortgage insurance, send a letter to your company explaining that you wish to cancel your insurance. In such cases, most lenders require a fresh appraisal to establish the current value of the property. If your loan amount is 80% or less of the appraised value of your house, you have fulfilled the biggest criteria for elimination of insurance. Appraisals costs between $300 and $400 depending on your location. This will prove to be a valuable investment if it ensures the elimination of mortgage insurance. You can expect a payback of your appraisal costs in less than 8 months.
8. How do I know my exact title charges and property taxes in advance?
The best method of ascertaining the current property taxes and title charges is to ask your realtor about them. These rates differ from one property to another, based on the assessed value and county location of the property. Title charges also vary by county and company. You may shop for a title company, and allow your realtor to order your title, or allow USA-Mortgage.com to arrange for your title and closing. While shopping for a title company, it is prudent to ask each company how much they charge. In the regulated states, all title companies charge uniform rates.
If you have chosen to let the realtor order your title, ask him/her what the charges are. If USA-Mortgage.com orders your title we will disclose the charges on the good faith estimate that we send to you. Though our website has title charge estimates, charges vary daily by state, county, company.
In some states, whether the buyer or seller pays these charges may be determined by negotiations between the two parties. Our explanation of our title charge estimates for your state may be found in our Quick Rates section.
9. Why is my Annual Percentage Rate (APR) different from my interest rate?
The Annual Percentage Rate (APR) enables homeowners to estimate the total cost of the loan, inclusive of closing costs. The APR also includes the cost of the “points” and other prepaid interest costs or fees that you may have opted for. The APR is a better indicator of the cost of the loan than the interest rate. When all other factors are the same, it is prudent to opt for the loan with the lowest APR.
10. What is a ‘good faith estimate’?
A ‘good faith estimate’ is an estimate of all the fees and costs associated with the loan. It is legally mandated that a good faith estimate must be provided by the lender to the borrower within 3 business days of applying for the loan. The difference between the good faith estimate and the final closing costs can only be 10% of the third party costs. This makes the good faith estimate an invaluable tool in the hands of the borrowers for estimating their expenses.
11. What is a "Truth-In-Lending" disclosure and what does it mean for you?
The Truth in Lending Act is a federal law enacted in 1968 with the objective of protecting the interests of consumers. The operative sections of this Act make it mandatory for lenders to disclose certain aspects of the loan to borrowers: Annual Percentage Rate (APR), Finance Charge, Amount Financed and Total of Payments.
The Annual Percentage Rate (APR) helps borrowers to estimate the total cost of the loan. It is an important factor from the point of view of the borrower, and he must be informed of it at the outset of the financial transactions between the lender and borrower.
Finance Charge = Total amount of interest calculated at the interest rate over life of loan
The ‘Finance Charge’ is the total amount of interest calculated at the interest rate over the life of the loan. It also includes Prepaid Finance charges and the total amount of any required mortgage insurance over the life of the loan.Amount Financed = Loan amount applied for – prepaid Finance Charges
The ‘Amount Financed’ is the loan amount applied for, but does not include the Prepaid Finance Charges. Prepaid Finance Charges include items paid at or before settlement, such as points and initial mortgage insurance premium. The Amount Financed may be lower than the amount you applied for because it represents a net figure. If you applied for $50,000 and the Prepaid Finance Charges totaled $2,000, the Amount Financed would be $48,0000.
Total of Payments, as the name suggests,is the total amount you will have paid if you make the minimum required payments for the entire term of the loan. This includes principal, interest and mortgage insurance premiums, but does not include payments for real estate taxes or property insurance premiums.
The first number in the adjustment periods for USA-Mortgage.com programs indicates the initial fixed period. The second number indicates how often adjustments occur after the initial fixed period.