2. US Mortgage Corporation (NMLS ID#3901). Corporate Office is located at 201 Old Country Road, Suite 140, Melville, NY 11747; 631-580-2600
or (800) 562-6715 (LOANS15). Licensed Mortgage Banker-NYS Department of Financial Services- AK, AL, AR, CA, CO, CT, DC, DE, FL, GA, IA,
ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MS, MT, NC, ND, NE, NH, NJ, NM, OH, OK, OR, PA, RI, SC, SD, TN, TX, VA, VT, WA, WI, WV, WY State
Banking Departments/Regulators. Rates, fees and program guidelines are subject to change without notice. Some loans arranged through
third parties. First mortgages only. Not all products and/or programs are available in all states. Certain restrictions may apply.
5. Although almost all of us have heard of the word, ‘mortgage,’ most of us don’t really know
what it means. Unless you are planning on becoming a home-owner, you will not know
the terms and features of a mortgage. In the simplest terms, a mortgage is a loan that you
take out to buy a property. Unlike other types of loans, a mortgage takes a long time to pay
back and they are secured against property. Most mortgages have time-periods of around
25 years, so the choice of taking out a mortgage should not be taken lightly. Failure to
maintain repayments can result in the repossession of your home. This is a problem that
many Americans faced during the subprime crisis.
The interest rate at which the mortgage loan is taken is known as the mortgage rate.
Mortgage rates are not the same for all borrowers. The rates depend on type of loan,
time-period of the loan, the borrower’s credit history and the current economic situation.
Mortgages are very long-term loans and they are not as simple as other types of loans.
Also, by the end of the mortgage, borrowers end up paying a large amount as interest.
To get the lowest mortgage rate possible and to get the home of your dreams, you need
to research and compare and make sure you know enough about mortgages to take the
plunge. However, thousands of people apply for mortgages every year and beginners
looking to take out a mortgage can obtain all of the necessary information from the
following sections.
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7. Taking out a mortgage is a life-changing decision as it can affect your financial
situation for the next couple of decades. Mortgage rates are obviously the most
important part of the mortgage as it decides the mortgage repayment installments.
You need to take out a mortgage with an interest rate and monthly installments
you can afford to pay. Different banks, lenders and financial institutions offer many
different types of mortgages with different rates. Moreover, these rates also depend
on the credit history of the borrower. However, all the types and rates of mortgages
fall into the following categories.
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9. • Fixed Rate
This is one of the safest types of mortgages available. In this type of mortgage, the interest or
mortgage rate will remain fixed for the entire term. This means that your monthly payments will
remain the same. This gives a sense of security and certainty to the borrower. Two common types of
fixed-rate mortgages are available – 30-year fixed mortgage and 15-year fixed mortgage. There are
other terms of mortgages available too.
The 30-year fixed mortgage is the most common type of mortgage that people take out. As the term
of this mortgage is very long, the monthly payments are very affordable. Also, the interest rate and
monthly payments do not change over the entire period. 15-year fixed rate mortgages are similar
except that the borrower has half the time to repay the loan. This means that the monthly payments
are higher. However, the shorter mortgage period allows people to build equity much faster.
• Adjustable Rate
Adjustable Rate Mortgages (ARMs) are riskier, as in this type of mortgage, the interest rate varies
with time. It can give homeowners a lower mortgage rate, but these rates vary with the market
and borrowers may end up paying more than they would with fixed rate mortgages in the long
run. These variable rate mortgages are also more complex and homeowners must comprehend the
contract properly before signing it to avoid nasty surprises. The rates of the ARMs may change on
a yearly basis.
• Combination Mortgages
Asthenamesuggests,thistypeofmortgageloanscombinefixed-rateandARMfeatures.Homeowners
are offered a fixed mortgage rate for a period of the term of the loan after which the interest rates
vary yearly, like that of ARMs. The interest rate of the mortgage can remain the same for three, five,
or seven years. After this period, it will be converted to an ARM.
• Split Rate
In this type of mortgage, homeowners are offered a fixed mortgage interest rate on part of the loan
balance and a variable rate on the rest. The balance can be split in many ways such as 75/25 and
60/40.
• Introductory Rates
Such mortgage rates are offered by banks to lure customers and are often known as honeymoon
rates. In these types of mortgage loans, interest rates can be as low as 2% less than the market average
for a period of 6 months to a year. Once this time period expires, mortgage rates are converted back
to original rates matching market averages.
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11. As mentioned earlier, shopping around for a mortgage loan is not an easy task and is
time-consuming. Finding affordable mortgage rates is probably the most important
task while looking to take out a mortgage. The interest rates will ultimately decide
the amount of money you need to pay as monthly installments. High interest rates
could mean that you will end up paying a lot more than the value of the property and
principal amount in interest itself. So how do you reduce the interest rates that lenders
are offering you?
• Take Out An FHA Mortgage
Firstly, you need to check if you are eligible for a Federal Housing
Administration (FHA) home loan or mortgage. These home loans are
mortgages that are fully insured through the FHA. Consequently, an
FHA mortgage has a lot of benefits over mortgages offered by other
financial institutions. The organization offers some of the best terms,
such as lower interest rates, lower down payments, and lower closing
rates. It is also easier to qualify for an FHA mortgage and there is less
chance of foreclosure.
• Do Your Research
There are tons of websites and tools that allow you to compare and
analyze the mortgage rates offered by different lending institutions. As
mortgage rates change almost daily, it is best to monitor these rates over
a period and then decide on the type and rate of mortgage to settle
on. Of course, the mortgage rate available to you will depend on your
income, assets, FICO credit score and debt to income ratio.
• Choose Short-Term Loans
15 year mortgage loans are offered at a lower interest rate than 30-
year or 25-year ones. However, the monthly payment amount is much
higher for short term loans. If you can afford the monthly payments,
then you should go for a short term loan as you will be paying much
less in the long run.
• Improve Your Credit Score
It is common knowledge that a good credit score will ensure that you
get the best interest rates on all kinds of loans. A good credit score can
save you thousands of dollars over the term of your mortgage. You can
get the best mortgage rates if your FICO score is 760 or better. A good
score, along with a stable income, guarantees that you get the best rates.
• Raise Your Down Payment
Lenders consider the amount of down payment on your home while
deciding your creditworthiness and interest rate. The lowest rates are
offered to those who have at least a 20& down payment, or in other
words, a 20% equity cushion. A lower down payment means that you
will also have to pay for Private Mortgage Insurance or PMI.
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13. Lenders publish mortgage rates on a daily basis; however,
these rates may not be applicable to you, as interest rates
depend on many personal factors. After a lender has
accepted and analyzed your mortgage application, you will
be offered an initial approval and the choice to lock-in the
mortgage rate offered to you. Once you lock the mortgage
rate, the lender has to finalize your home loan based on the
rate you were offered on the day you locked-in the rate,
even though mortgage rates change daily.
Mortgage rates cannot be locked till the lender has verified
your credit score and checked if you have a steady income
to make monthly payments. You also need to decide on
the property you wish to buy before you can lock-in your
mortgage rate, as some properties, like condominiums, can
only be financed at higher mortgage rates.
Rate locks are not permanent and they are valid for 30 days
on average. As it takes more than 45 days to successfully
process a loan, it is best to lock mortgage rates after you
find out when the closing date of the loan is. Most people
lock in their mortgage rates when they are sure that the
lock will not expire before the close of the loan.
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14. Some lenders also offer extended locks on rates lasting up to 120 days. To get these extended
locks you have to pay points, which are payments towards the interest amount. Rate quotes
and rate locks are very different terms. A rate quote is a general estimate of the rates you
could get whereas a rate lock is legally binding and decides the final rate offered to you.
Most importantly, you must get the rate lock in a written document. A verbal agreement
is useless and a rate lock should be a legally binding document. This document must
accompany the letter of commitment or should be explained in the commitment
letter itself. The lock-in document must include the names of the lender and
borrowers, the loan amount, points, interest rates and the lock-in fees. The
date the lock was initiated and the expiry date of the lock must also be
mentioned in the lock-in document. You must read this document carefully
while deciding on a mortgage rate lock in.
Check if your rate lock comes with a rate cop. Rate cops with your rate lock
means that if the interest rate rises, the lender is allowed to raise your mortgage
rates slightly while remaining within the rate cap. Although this is a common
practice, it is best to be aware of this when you lock-in your rates.
Things To Consider
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19. Most people ask – why aren’t mortgage rates stable?
Mortgage rates are subject to economic forces and
evenaslightincreaseordecreasecanmakealotof
difference in the repayments that you make.
When there is an economic decline and
sales of homes are decreasing, the rates
also decrease. Similarly, when economic
activity rises, the rates rise too. Loan
percentage points or mortgage rates
change almost daily and sometimes
more than once a day.
Homeowners who have taken out
fixed rate mortgages are somewhat insulated from the effects of constant
mortgage rate changes. People who have taken ARMs will not feel the effects
of daily mortgage rate changes as lenders are allowed to change mortgage
rates only a fixed number of times a year. Lenders cannot change mortgage
rates more than four or five times a year.
Drastic changes in mortgage rates can have profound effects on both
homeowners and sellers and buyers of real estate. Homeowners are often
not prepared for ARM rate changes and their homes are repossessed when
they are unable to afford monthly payments. Even if the situation is not
so dire, many homeowners have to adjust personal finances to meet rising
mortgage rates.
Rising mortgage rates may eat into the purchasing power and life savings
of homeowners. Buying habits of potential real estate buyers and average
consumers are also affected by mortgage rate changes. Most importantly,
higher mortgage rates can make it hard for many homeowners to make
payments. Late payments can result in hefty fines and can also affect
the credit scores of homeowners.
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20. Maria Amalia Arrua
Mortgage Loan Originator
NMLS #851361
201 Old Country Road, Suite 140
Melville, NY 11747
Office: (631) 750-0565
Cell: (516) 554-7272
maria.arrua@usmortgage.com
www.usmortgage.com
1994 2014
