Question:
What is the difference between
a Mortgage Loan, Mortgage Refinancing, Home Equity
Loan, and Debt Consolidation Loan?
Answer:
Mortgage Loan - A loan for which real estate serves
as collateral to provide for repayment in case of
default. Mortgage Note - Legal document obligating
a borrower to repay a loan at a stated interest rate
during a specified period of time. The agreement is
secured by a mortgage.
Refinancing
- The process of paying off one loan with the proceeds
from a new loan secured by the same property.
Home
Equity Loan - An additional mortgage secured by the
equity in the home. All funds for this loan are disbursed
at closing. Also see Home Equity Line of Credit.
Home
Equity Line of Credit - A revolving line of credit
secured by the equity in the home. Unlike a Home Equity
Loan, these funds may be drawn and repaid like a credit
card.
Debt Consolidation - The replacement of multiple loans
with a single loan, often with a lower monthly payment
and a longer repayment period. Can also be called
a consolidation loan.
Return to Top
Question:
What are the basic types of mortgages?
Answer:
There are two basic types of mortgages:
Fixed
interest rate with fixed monthly payments:
Common fixed-rate mortgages include 30-year, 15-year,
and balloon repayment terms. The 30-year mortgage
usually offers the lowest monthly payments, with a
fixed monthly payment schedule. The 15-year fixed-rate
mortgage enables you to own your home in half the
time and for less than half the total interest costs
of a 30-year loan. These loans, however, often require
higher monthly payments. Balloon mortgages are like
a 30-year fixed loan except that at the end of five,
seven, or ten years (the "balloon term"),
the loan becomes due and payable. Monthly payments
are identical to a 30 year fixed loan, however when
the loan matures (at the end of the "balloon
term"), you must pay it off or refinance. Balloon
loans are best suited for people who know they will
sell or refinance their home before the loan matures.
The benefit is that the interest rate is typically
one-half of one percent lower.
Adjustable
(ARM) with variable rates and changing monthly payments:
Mortgages with changing interest rates and/or monthly
payments exist in many forms. The adjustable rate
mortgage (ARM) is the most common. Initially the ARM
usually offers interest rates and monthly payments
that are initially lower than fixed-rate mortgages.
However, payments and rates can, and often do, fluctuate
according to changes in a pre-determined "index"
commonly lined to the rate of return on U.S. Government
Treasury bills. Some adjustable loans contain a provision
permitting you to convert later to a fixed-rate loan
and some carry a fixed-interest rate for a number
of years, often seven, before adjusting to a new interest
rate for the remainder of the loan.
However,
there are many variations of these plans, such as;
"buydowns","discounted" or "bi-weekly
mortgages", on the market and you should shop
carefully for the mortgage that suits your needs.
Return to Top
Question:
How do I shop for a mortgage?
Answer:
Bottom line, the annual percentage rate (APR) is probably
the most important factor when shopping for a mortgage
loan. The APR includes all the costs of credit, such
as interest, points, and other charges required as
a condition to the loan. Under the Truth-In-Lending
Act, lenders are required to disclose the APR to provide
you with a uniform and simple way of comparing loans
and to prevent hidden finance charges. Also, because
mortgage packages vary widely, it's important to investigate
and compare options from lenders to find what best
suits your needs. Mortgageloans.info can help by putting
you in contact with a variety of qualified lenders.
Return to Top
Question:
What's the difference between a thrift, a mortgage
banker and a mortgage broker?
Answer:
Thrift is your typical neighborhood bank or savings-and-loan
institutions that offer mortgages, savings accounts,
and other financial services and product. Mortgage
bankers are in the sole business of lending money.
Mortgage brokers are middlemen who work on behalf
of borrowers. Brokers research a variety of lending
sources -- thrifts, commercial banks, and mortgage
bankers -- to find loans to suit the specific needs
of borrowers they represent.
Return to Top
Question:
Should I focus on who advertises the lowest rate and
forget the type of institution?
Answer:
You can, but unfortunately, there is no guarantee
you will get the rate advertised. The rate may be
good for only 30 to 60 days and, most likely, it will
take you longer than that to close. To get a loan
with a longer "lock in period", you usually
have to pay a higher rate. Furthermore, interest rates
can change daily. The better way to compare is to
ask each lender what the rate would be if your closed
in 90 days or whatever your timetable is. And, GET
EVERYTHING IN WRITING.
Return to Top
Question:
What documents do I have to provide?
Answer:
Be prepared to provide verification of income (including
a pay stub and the previous two years tax returns),
bank account numbers and details of your long-term
debt (credit cards, auto loans, child support, etc.).
If you're self employed you may also be required to
provide financial statements for your business. Lenders
will require detailed information. Don't be surprised
if a lender wants to know the origin of your down
payment.
Return to Top
Question:
How large of a mortgage loan will I be able to get?
Answer:
Usually, a borrower can qualify for a mortgage loan
of up to four times their household's pre-tax income
(assuming no debt). For example, if your family has
an income of $30,000 a year, you can qualify for a
mortgage of up to $120,000. With the same income and
$500 of monthly debt, you can qualify for a mortgage
of up to $50,000.
Lenders
when determining how large a mortgage you can obtain
consider many factors. For example, lenders want to
know personal information such as, credit and employment
history, which includes information regarding your
income, and job and you're past loan history. In addition,
lenders generally prefer that your housing expenses
(including mortgage payments, taxes, insurance and
special assessments) do not exceed 28% of your gross
monthly income. Other debt added to your housing expense
should not exceed 38% of your gross monthly income.
Federal Housing Administration (FHA) and Department
of Veteran Affairs (VA) mortgage loan percentages
may vary.
However,
there are many legal safeguards, which exist to ensure
this information is used fairly. For example, the
Fair Credit Reporting Act requires that lenders certify
to the credit bureau the purpose for which this information
is sought and that it will be used for no other purpose.
The Equal Credit Opportunity Act prohibits discrimination
in lending based on sex, marital status, race, national
origin, religion, age, or because someone receives
public assistance.
Return to Top
Question:
What are points?
Answer:
Points, otherwise known as discount points, are usually
the largest fee that a lender will charge. If you
have to pay any points in acquiring your loan, each
point equals one percent of your loan amount. For
instance, if you borrow $100,000 and have to pay one
point, you pay $1,000 in points to obtain the loan.
Return to Top
Question:
How much money will I need for a down payment and
closing costs to purchase a home?
Answer:
Generally, lenders expect you to be able to make a
down payment of at least five percent of the house's
price and to pay closing costs, which are often three
to four percent of the loan amount. If you make a
down payment as little as five to twenty percent,
the lender will require you to pay for private mortgage
insurance (PMI). If you make a down payment over twenty
percent, you will not be required to pay for private
mortgage insurance. Under the Federal Real Estate
Settlement Procedures Act, the lender must provide
you with information on known and estimated closing
costs. (Requirements for VA or FHA loans may differ.)
Return to Top
Question:
What is mortgage insurance?
Answer:
Mortgage insurance insures the lender against default
and foreclosure. If the borrower default on his or
her payments and the property is foreclosed, the mortgage
insurance company must repay the lender all or a portion
of its losses. If you down payment or equity is less
than twenty percent, you will be required to pay for
mortgage insurance. Don't confuse "mortgage life
insurance" with "mortgage insurance".
Mortgage life insurance is an optional life insurance
policy that you can buy from your insurance agent.
It pays off your mortgage in the event of your death.
Return to Top
Question:
Does it make sense to prepay my mortgage or should
I use the money to invest elsewhere?
Answer:
Pre-paying your mortgage shortens the term of your
loan which will save you thousands of dollars in interest.
As a general rule, on a 30-year mortgage, you save
$3 for every $1 you pre-pay. You get back $2 for every
$1 you pre-pay after taxes. So, pre-paying your mortgage
is a risk-free and easy investment. Even rounding
your monthly payment up to the nearest $100, it will
save you money over the long term. (If you pay $989.00
each month, write a check for $1,000.00). For instance,
if your mortgage rate is 6 percent per year, that's
what you'll earn on your pre-payment. Compare that
return with what you'd earn in other comparably safe
investments. However, don't forget to weigh the advantages
of pre-paying your mortgage against paying off debt.
If your credit card interest rate is 19 percent, it
doesn't make sense to pre-pay your 6 percent mortgage
before paying off this higher-interest debt.
Return to Top
Question:
What is tax deductible?
Answer:
Interest, points and some closing cost may be deductible
for the borrower. Make sure to consult a tax advisor.
Return to Top
Question:
What's the difference between thrift, a mortgage banker
and a mortgage broker?
Answer:
Thrift is your typical neighborhood bank or savings-and-loan
institutions that offers mortgages, savings accounts,
and other financial services and product. Mortgage
bankers are in the sole business of lending money.
Mortgage brokers are middlemen who work on behalf
of borrowers. Brokers research a variety of lending
sources -- thrifts, commercial banks, and mortgage
bankers -- to find loans to suit the specific needs
of borrowers they represent.
Return to Top
