Financing, Mortgages and More

Avoiding Financial Stress

By asking the right questions, and knowing exactly what your needs are, you can find the right loan for yourself. There are certain approaches that you can take while mortgage shopping that can cost or save you money.

It is still true that the better qualifications you have, the lower your interest rate will be. However, there are mortgages available for almost everyone; it's the interest rates or the down payments that vary.

Before speaking with a lender, know what monthly dollar amount you feel comfortable committing to. Then when you discuss mortgage pre-approval with your lender, it is easier for you to determine the monthly amount and what value of home the monthly amount translates into. Do not put yourself in the position where you will be paying more each month than you intended simply because the "dream" house requires it.

Do your research on the types of mortgages available to you and find the one that best suits your needs. There are a number of considerations to be made in terms of finding the best mortgage for each individual:

One of the most important factors involved in getting a mortgage and getting one at a good rate is your credit score or FICO.

Credit score is the result of an analysis of your credit file data. It predicts how likely you are to repay loan on time

Credit scores - among factors considered are : delinquencies and late payments (both in frequency and severity, outstanding debt (the number of balances reported by creditors and the average balances, credit history and types of credit in use including installment loans and credit cards of all types
 

FICO

When you apply for a mortgage loan, you expect your lender to pull a credit report and look at whether you've made your payments on time. What you may not expect is that they seem to be more interested in your "FICO" score.

"What's a FICO score?" is a common reaction.

Each time your credit report is pulled, it is run through a computer program with a built-in scorecard. Points are awarded or deducted based on certain items such as how long you have had credit cards, whether you make your payments on time, if your credit balances are near maximum, and assorted other variables. When the credit report prints in your lender's office, the total score is displayed. Your score can be anywhere between the high 300's and the low 800's.

Lenders wanted to determine if there was any relationship between these credit scores and whether borrowers made their payments on time, so they did a study. The study showed that borrowers with scores above 680 almost always made their payments on time. Borrowers with scores below 600 seemed fairly certain to develop problems.

As a result, credit scoring became a more important factor in approving mortgage loans. Credit scores also made it easier to develop artificial intelligence computer programs that could make a "yes" decision for loans that should obviously be approved. Nowadays, a computer and not a person may have actually approved your mortgage.

In short, lower credit scores require a more thorough review than higher scores. Often, mortgage lenders will not even consider a score below 600.

Some of the things that affect your FICO score are:

FICO actually stands for Fair Isaac and Company, which is the company used by the Experian (formerly TRW) credit bureau to calculate credit scores. Trans-Union and Equifax are two other credit bureaus who also provide credit scores.

Mortgages

There are two BASIC types of mortgages

  1. Fixed Rate - You've probably heard of the 30-year fixed rate mortgage. It is the most common in the U.S. There are also 15-year (and even 10- and 20-year and now even 40 year) fixed rate mortgages, which allow you to pay off your mortgage in less time, with less interest. A fixed rate loan is one in which principal and interest are amortized, or spread out, evenly over the term of the loan, so that both interest rate and monthly payments remain unchanged for the life of the loan.

  2. Adjustable Rate (ARM) - are flexible loans with interest rates and monthly payments that rise and fall with the economy. With an adjustable loan, the borrower shares in the benefits and risks of having the loan tied to market changes. Because the borrower shares in the risk of rising rates, lenders are able to offer lower initial interest rates than on fixed rate mortgages. The interest rate on your loan is then adjusted periodically according to whatever market index you chose when  selecting your ARM.

    Interest rate and monthly payment can change every six months, once a year, every three years, or every  five years. For example, a one-year ARM has an adjustment period of one year, which means that the interest rate and monthly payment can change once a year. The frequency and dates of adjustments are established when you apply for your loan.

    The interest rate on an adjustable mortgage changes according to a financial index. You may choose an ARM  tied to any one of a variety of market indexes, such as CDs, T-Bills, or LIBOR rates. When your interest rate is up for adjustment, your lender will take the current rate of the index to which your loan is tied and add a margin, a certain set number of interest points laid out in your loan agreement, to determine your new rate. So, your interest rate and monthly payments could increase or decrease over the life of your loan, depending on the activities of the market.

    Caps set forth in your loan agreement limit the amount by which the interest rate can increase at each adjustment. And ceilings, or lifetime caps, limit the total rate increase over the life of the loan. So, if you have a typical one-year ARM, your annual rate increases may be capped at 2%, which means that your interest rate can never increase by more than 2% over the previous year. And your  loan may have a lifetime rate cap of 6%. So, if you had an initial interest rate of 5%, the highest interest rate you could ever pay would be 11%. Caps protect you from drastic changes in interest rate, but do not guarantee you the stability of a fixed rate loan. With an ARM, you exchange the possibility of lower interest rates for the possible risk of rising rates

Monthly dollar amount to amortize a $1000 loan

Divide the loan amount by 1,000 and multiply by the rate/term (example: $120,000 loan with an interest rate of 6%, 30 years - 120 X 6.00 = $720.00 monthly payment)

Interest Rate % 0 15 Year Term 0 30 Year Term 000 Interest Rate % 0 15 Year Term 0 30 Year Term
4.00   7,40   4.77   10.00   10.75   8.78
4.25   7.52   4.92   10.25   10.90   8.96
4.50   7.65   5.07   10.50   11.05   9.15
4.75   7.78   5.22   10.75   11.21   9.33
5.00   7.91   5.37   11.00   11.37   9.52
5.25   8.04   5.52   11.25   11.52   9.71
5.50   8.17   5.68   11.50   11.68   9.90
5.75   8.30   5.84   11.75   11.84   10.09
6.00   8.44   6.00   12.00   12.00   10.29
6.25   8.57   6.16   12.25   12.16   10.48
6.50   8.71   6.32   12.50   12.33   10.67
6.75   8.85   6.49   12.75   12.49   10.87
7.00   8.99   6.65   13.00   12.65   11.06
7.25   9.13   6.82   13.25   12.82   11.26
7.50   9.27   6.99   13.50   12.99   11.45
7.75   9.41   7.16   13.75   13.15   11.65
8.00   9.56   7.34   14.00   13.32   11.84
8.25   9.70   7.51   14.25   13.49   12.05
8.50   9.85   7.69   14.50   13.66   12.25
8.75   10.00   7.87   14.75   13.83   12.44
9.00   10.14   8.05   15.00   14.00   12.64
9.25   10.29   8.23   15.25   14.17   12.84
9.50   10.44   8.41   15.50   14.34   13.05
9.75   10.59   8.59   15.75   14.51   13.25

For Your Information

Did you know that by making one extra monthly payment per year will pay a thirty year fixed rate loan off in twenty years

An appraisal is an educated opinion of the market value of a property

FASY REAL ESTATE - "Your SECOND home is our FIRST priority!"  

   609.398.8000       fax: 609.398.5084       cell: 609.602.4493

 

 

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