Archive for Rates
Rates and APR: What Do They Tell You
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What is the difference between the interest rate and the A.P.R.?
You’ll see an interest rate and an Annual Percentage Rate (APR) for each mortgage loan you see advertised. The easy answer to “why” is that federal law requires the lender to tell you both. By showing both this can lead to confusion, especially to those First Time Homebuyers.
The Federal Reserve wants the APR to be a tool for comparing different loans, which will include different interest rates but also different points, fees, and other terms. The APR is designed to represent the “true cost of a loan” to the borrower, expressed in the form of a yearly rate. The problem is that there are many costs associated with a loan, that are not considered in APR.
What Fees Are Included In The APR?
- Loan Origination Fee
- Loan Discount Fee
- Other Lender/Broker Fees (Application, Underwriting, Processing, Tax Service Fee, etc.) – Anything paid to the broker or lender or affiliate of the broker or lender
- Odd Days Interest
- Mortgage Insurance Premium
- Title Closing Fee
While APR was designed as an attempt to make it easier to compare loans, it’s sometimes confusing because the APR includes some, but not all, of the costs associated with a mortgage. And since the federal law that requires lenders to disclose the APR does not specifically declare what goes into the calculation, APR’s can vary from lender to lender and loan to loan.
What Fees Are Not Included In The APR Calculation
- Escrow Setup
- Appraisal Fee
- Title Insurance
Let’s Throw Adjustable Rate Mortgages In The Mix
The APR on an Adjustable Rate Mortgage (ARM), a loan tied to a financial index, like a 5/1 ARM, assumes the index will never change. The interest rate on an ARM is composed of the index and margin. Because of the underlying assumption that the index will not move over the life of the loan, the APR can be grossly under or over stated on an ARM depending upon if the index moves up or down over the life of the mortgage. ARM’s loans were created because the Bank does not have to assume the interest rate risk of a Fixed 30 Year Mortgage, allowing the consumer to get a slightly lower rate, and assume the risk that rates will rise. These financial indexes have always moved over the course of a 30 year mortgage thus making the APR a difficult tool to compare a fixed rate mortgage to an ARM.
So, APR’s are at best inexact. The lesson is that APR can be a guide, but you need a mortgage professional to help you find the truly best loan for you.
Show What Should You Do?
You as a consumer need to look at two things when considering a mortgage loan
- The front end costs associated with obtaining the loan, not just those deemed pre-paid finance charges, and thus included in the APR calculation
- The interest rate, and the total cost of the loan over time.
Here is a Comparison of two different mortgages, both 30 year fixed rate mortgage.
The first mortgage has an APR of 5.03%, and the 2nd has an APR of 5.25%. So, if you were to choose a loan simply based on the APR the typical choice would be the 1st mortgage; however, if you will be staying in the home less than 90 months (most loans are only held for 60 months) then the best choice is Loan 2, because the total cost is cheaper.
Make sure you are dealing with a mortgage professional that doesn’t just throw rates and fees at you over the phone. I’ll take the time to prepare a total cost illustration and determine that the loan you select meets your long term objective.
I really appreciate you coming back to look around. If you know of anyone else you think might enjoy my blog, please don't keep me a secret.
Mortgage Tuneup
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Give your mortgage an annual once over
If the last time you looked at your mortgage was when you closed on your loan, it’s time to take it out for an annual once over. New loan programs and opportunities to leverage your home equity can bring you lower mortgage payments and new investment opportunities.
Is a fixed rate mortgage the best choice for you?
Many of us opt for the certainty of a 20 year or 30 year fixed rate mortgage when we get our first mortgage. If you anticipate selling your home within the next 10 years, an adjustable rate may be a better financial fit for you. Adjustable Rate loans typically have a lower fixed rate than a traditional 20 or 30 year mortgage. The savings you receive can well be worth switching to a adjustable rate loan.
Are you paying for Private Mortgage Insurance (PMI)?
There are loan programs available that can help you eliminate PMI, even if you have less than 20% equity in your home. The monthly savings adds up quickly. This money can be put to better use to help you achieve other short-term and long-term financial goals.
Are your taxes and insurance up to date?
Even though your mortgage servicer is responsible for paying your taxes and insurance out of your escrow account, it just makes sense to periodically check to see that these payments are being made properly. While you’re at it, you’ll want to review your homeowner’s insurance policy. It’s a good idea to review your policy every two to three years to make sure it covers recent home improvements, replacement costs for the contents of your home, and that its reconstruction coverage is keeping pace with inflation.
Do you have a Home Equity Line of Credit (HELOC) for emergencies?
Many homeowners are making the proactive choice to secure a Home Equity Line of Credit (HELOC) for emergencies. A HELOC is a revolving line of credit that only charges interest when you actually draw money from the line of credit. As you repay the balance of the draw, the credit becomes available again. Securing a HELOC in advance can be a great help if you’re ever laid off or have an unexpected medical or other emergency.
How’s your credit report?
The information in your credit report has a huge impact on whether or not you will again qualify for a mortgage loan. That’s why it’s important to periodically check your credit report.
Now it’s even easy to do so. A recent amendment to the federal Fair Credit Reporting Act (FCRA) mandates that each credit reporting company provide you with a free copy of your credit report, at your request, once a year. To request your free credit report, visit http://www.annualcreditreport.com.
Are you making the most of your home’s equity?
While home prices have not been increasing in the last few years, regular monthly payments reduce the amount of your mortgage balance, thus increasing the amount of equity in your home than you realize. Taking out a home equity loan to payoff credit card debt, car loans and other higher interest debts makes good financial sense. Ric Edelman, explains 10 Reasons to Carry a Big Long Term Mortgage.
Is it time to refinance?
The timing might be right to refinance your mortgage loan. New rates may help you significantly lower your monthly payment. Or you might want to “cash out” some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation – whatever! Perhaps by refinancing you can even pay off your mortgage sooner!
I’ll work with you to determine if the timing is right to change your loan program, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your future plans.
Increase Your Credit Score in 30 Days
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Author and credit scoring expert Linda Ferrari shares 5 simple things you can do to help raise your credit scores quickly.
If you can’t view the above video, click to learn the 5 things to increase your credit score
Unlock the Savings Trapped in Your Current Mortgage Loan
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“A penny saved is a penny earned”… or so the old proverb goes. Of course, the value of a penny has changed somewhat from the time when your grandfather offered his wisdom on the value of keeping what you earn. Today, you could save thousands of dollars by simply making the right mortgage decision. If you haven’t taken advantage of the historically low interest rates you are leaving huge savings in the pockets of a banker.
Your mortgage is one of your most significant financial decisions. Making the right decision regarding your mortgage can have a huge impact!
It is my primary role as a mortgage broker to find you the right product for your personal situation. A mortgage broker is a financial professional and – like your investment advisor – I want to understand your personal situation and payment preferences. I have access to many lending institutions, so you can do some valuable comparison shopping for the right combination of features, rates and mortgage options.
All these choices offer you substantial opportunities to save money over the life of your mortgage.
If you are like most homeowners, you are focused -for good reason – on finding the best possible rate for your mortgage. A mortgage broker can offer you the best range of rate options and terms. If a mortgage broker can get you a half per-cent (1/2%) off the posted rate, that could mean a savings of more than $17,000 in interest per $150,000 borrowed over a 30 year term. If, however, you believe that most mortgage rates are basically the same from one institution to the next, then consider the fact that even an eighth of a point difference in the rate can offer significant savings over the duration of your mortgage.
But it’s also important to look beyond the rate. There are other ways to find savings in your mortgage. I am up-to-date on market trends and new opportunities… as well as some of the tried-and-true ways to save money in a mortgage.
Do you get an annual bonus in your job? You may want to use that bonus to pay down the principal of your mortgage. If you pursue this strategy consistently over the life of your mortgage, you could save thousands of dollars in interest by paying your mortgage off sooner. However, sometimes, it makes more sense to save this money is a safe side account, that you could utilize to pay down your mortgage, or as an emergency cushion.
Are you paid bi-weekly or bi-monthly? Consider a change from the usual monthly mortgage payment. Set up your mortgage payment schedule to coincide with your pay period. Again, you can shave years off your mortgage, and enjoy thousands of dollars in savings. You can accomplish the same thing through just making one extra payment per year as well.
Consider the old penny proverb again. How much is your time worth? Time savings is one of the key, unexpected benefits that clients say they have enjoyed when they choose to work with a me. Above all, I’m an expert in customer service, and that means that I look after every detail of your mortgage research and negotiations on your behalf.
You can take advantage of these historically low rates even if you presently have a USDA loan. You can refinance a present USDA Guaranteed Loan and even a USDA direct loan. Call Jeremiah to find out how.
The Good Faith Guarantee – What You Need to Know as a Borrower and a Realtor
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- Flickr photo by David Reece
The Department of Housing and Urban Development (HUD) under RESPA revised the Good Faith Estimate, HUD-1, and HUD-1A through regulation adopted in 2008 which became effective January 01, 2010. The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, passed in 1974. The purpose of the act is to help consumers become better shoppers for settlement services and to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services. RESPA covers loans secured with a mortgage placed on a one-to-four family residential property.These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. RESPA requires borrowers to receive disclosures at various times. A Good Faith Estimate is required to be delivered within three (3) days of giving six required items:
- Name
- Social Security Number
- Monthly Income
- Property Address
- Property Value (Estimate)
- Loan Amount
Fees disclosed on the new Good Faith Estimate are grouped into three categories:
- Fees that cannot increase from the initial estimate to closing
- Fees that may vary as much as 10 percent from the initial estimate to closing
- Fees that may increase without limit, because the lender has no control over them or may be difficult to predict in advance.
Fees in the no tolerance group: lender fees, mortgage broker fees, processing, underwriting, and discount points.
Fees in the 10% variance group: appraisal, recording fees, credit report, flood certification, tax service, mortgage insurance, and guarantee fee. Title closing and title insurance are included in this group when selected from a provided list by the borrower. Any single fee could vary by more than 10%, the combined total of the fees in this group may not increase by more than 10%.
Fees in the unlimited increase group: homeowner’s insurance, per diem interest, and setting up the initial escrow account. Title closing, and title insurance are included in this group when they are not selected from a list provided by the lender.
The New Good Faith Estimate – The Positive:
As a customer you have a minimum of 10 days to shop for various settlement services. The Good Faith Estimate is now lo longer an “Estimate” but an Etched in Granite Guarantee of Fees charged by the Mortgage Broker and Lender. This very fact will eliminate any companies still that would attempt to bait and switch consumers by offering low fees, and then increasing at closing. The format of the new Good Faith Estimate may not be modified from the version prescribed by HUD, this will make it easier for consumers to compare GFE’s from one lender to another.
The New Good Faith Estimate – The Neutral Items:
The overall costs for closing a loan have not decreased, and none of the items have went away, and no new items have been added because of the new Good Faith Estimate. The borrower will be asked to provide a commitment to the loan and to moving forward prior to locking in the rate and terms. If the borrower does not provide their commitment to moving forward with the loan by the end of the shopping term, minimum 10 days, then the lender no longer has to honor the terms. If the terms do happen to change during the process then this will trigger another 10 day grace period.A very important part for the customer to pay attention to is how long the interest rate being offered is good through. Because of MDIA (Mortgage Disclosure Improvement Act of 2009) the APR at closing cannot be off by more than 1/8%, if it is it must be re-disclosed and have a 3 day waiting period. So, the interest rate will need to be locked in at least 5 days prior to closing with most investors requiring 10 days. Interest rates are very fluid so guaranteeing an interest rate for any lenght of time is very difficult, since the interest rate could change.
The New Good Faith Estimate – The Stuff that was forgotten:
The Lender and Broker are responsible for the accuracy of fees that are typically paid for by the seller, ie. Owners Title Policy. A seller’s closing cost concession is not shown on the new Good Faith Estimate. The proration of taxes is not shown. Proration of taxes is a credit given to the buyer, when taxes are paid one year after assessment, since the new buyer’s first bill would be for a time period when they were not living in the property.
The two most important pieces information everyone wants to know when purchasing a home:
- What is my total monthly payment. The Principal, Interest and Mortgage Insurance is included, but not the Taxes and Insurance. Sure everyone can just add the cost, but wouldn’t it make more sense to just include the total payment, it was on the old Good Faith Estimate. With a USDA Home Loan you don’t have to worry about the added expense of mortgage insurance.
- How much money will I need to close. If your using a USDA Home Loan this doesn’t become as much of an issue, but still something you want to know.
Because of timelines with RESPA and MDIA it is important to work with a knowledgeable mortgage broker to ensure that closing deadlines are met.
