Gateway Mortgage Group

2009 Longwood Lake Mary Road 

Longwood, Florida 32750

(407) 321-4066 x101

APPLY ON-LINE AT:

www.GroupGateway.com

Gateway Title & Escrow Group

2009 Longwood Lake Mary Road 

Longwood, Florida 32750

(407) 321-4066 x103

www.GatewayTitleGroup.org

Gateway Real Estate Group

2009 Longwood Lake Mary Road 

Longwood, Florida 32750

(407) 321-4089

LINK: GatewayRealEstateGroup

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INTEREST RATES

What is your rate? This is the first question that I am asked with almost every potential client I talk to. I have been able to develop a scientific yet easily understood answer for that first question. Each situation is unique and until I have specific information about you and what you are trying to accomplish I won't be able to quote you an exact rate.

First, let's first understand what makes mortgage interest rates go up and down. The vast majority of mortgage rates are directly influenced by and are based on the yield of the Treasury Bonds. As the buy price of the bond increases, the yield of the bond goes down and mortgage interest rates go down also. Conversely, as the price of the bond goes down, the yield goes up and so do mortgage interest rates. The interest rates a lender charges, can fluctuate not only daily but minute by minute.

The lenders can not only change their rate during a day but can refuse to lock in a rate as they choose.

All of the recent talk about interest rate cuts in the media has been very misleading to a lot of consumers. The rate reductions or increases, by the government recently, apply to the rate the Federal Reserve charges banks to borrow funds short term. These reductions do not apply to mortgages as has been stated in some reports. I wish it were that simple but it just doesn't apply.

Long story short, until your rate is locked with a lender and your loan is approved to close, there is no single answer to the "What is your rate?" question.

Let's talk about those rates in the paper. Lenders, advertising mortgage rates, must first have their information to the paper before a certain time to meet printing deadlines. If the rate changes before the paper comes out, most often, the lenders either cannot or don't get the corrections back to the paper. Therefore, the rates may not still be available at the time of printing. The same premise can hold true for rates published on the Internet.

The rates are also based on a number of parameters and should you fail to meet any of them, you probably won't qualify for that rate. Typically, those rates are reserved for those people with credit scores of over 680, no late payments of any kind in the last 24 months, salaried, paying 20% down plus closing costs and buying a home for at least $120,000. These rates don't apply to refinancing, homes less than the stated purchase price, and a variety of other factors too numerous to talk about here.

As I have said before, each loan is a unique set of circumstances and there no guarantee of any rate until a lot of information is gathered and your credit report scored.

The loan process is a relatively simple process because all it requires is about two inches of paper and a complete disclosure of all your credit and financial information. All too often the borrower feels as though all their innermost secrets are being disclosed and why does anyone need that much information. The answer is rather simple. How much information would YOU want to loan me $80,000?

In addition to all of this information, there are a wide variety of people and firms working behind the scenes to provide you with a loan. First there are the credit repositories whose sole function in life is to verify how well you pay your bills.

There must also be a verification of your employment and that requires a written form from your employer. Should you be self-employed, the rules change again. If you currently own, your mortgage payment history must be verified and a current payoff must be obtained in writing from your lender. If you currently rent, your landlord must verify your rental history or you must provide copies of your last 12 months rent checks-front and back.

Next in line comes the appraiser to verify the value of the property to the lender. Lenders are generally unwilling to loan more than the value of the home. The appraiser is followed by the surveyor, the termite inspector, the flood certification company, the title company, the mortgage insurance company and last but not least, your home owners insurance company. All of these people play an important role in the success or failure of your loan application. I have no control over these other companies and can only wait for their answers.

My best advice is to get pre-qualified and credit approved before signing a contract to buy a home. Believe me when I say that surprises after the fact are no fun for anyone.

ALL ABOUT ADJUSTABLE-RATE MORTGAGES

Adjustable-rate mortgages (ARMs) differ from fixed-rate mortgages in that the interest rate and monthly payment can change over the life of the loan. ARMs also generally have lower introductory interest rates vs. fixed-rate mortgages. Before deciding on an ARM, key factors to consider include how long you plan to own the property, and how frequently your monthly payment may change.

WHY CHOOSE AN ADJUSTABLE-RATE MORTGAGE?
The low initial interest rates offered by ARMs make them attractive during periods when interest rates are high, or when homeowners only plan to stay in their home for a relatively short period. Similarly, homebuyers may find it easier to qualify for an ARM than a traditional loan. However, ARMs are not for everyone. If you plan to stay in your home long-term or are hesitant about having loan payments that shift from year-to-year, then you may prefer the stability of a fixed-rate mortgage.

COMPONENTS OF ADJUSTABLE-RATE MORTGAGES
Adjustable-rate mortgages have three primary components: an index, margin, and calculated interest rate.

• Index
  The interest rate for an ARM is based on an index that measures the lender's ability to borrow money. While the specific index used may vary depending on the lender, some common indexes include U.S. Treasury Bills and the Federal Housing Finance Board's Contract Mortgage Rate. One thing all indexes have in common, however, is that they cannot be controlled by the lender.
• Margin
  The margin (also called the "spread") is a percentage added to the index in order to cover the lender's administrative costs and profit. Though the index may rise and fall over time, the margin usually remains constant over the life of the loan.
• Calculated interest rate
  By adding the index and margin together, you arrive at the calculated interest rate, which is the rate the homeowner pays. It is also the rate to which any future rate adjustments will apply (rather than the "teaser rate," explained below).

ADJUSTMENT PERIODS AND TEASER RATES
Because the interest rate for an ARM may change due to economic conditions, a key feature to ask your lender about is the adjustment period or how often your interest rate may change. Many ARMS have one-year adjustment periods, which means the interest rate and monthly payment is recalculated (based on the index) every year. Depending on the lender, longer adjustment periods are also available.

An ARM can also have an initial adjustment period based on a "teaser rate," which is an artificially low introductory interest rate offered by a lender to attract homebuyers. Usually, teaser rates are good for 6 months or a year, at which point the loan reverts back to the calculated interest rate. Remember, too, that most lender will not use the teaser rate to qualify you for the loan, but instead use a 7.5% interest rate (or calculated interest rate if it is lower).

RATE CAPS
To protect homebuyers from dramatic rises in the interest rate, most ARMs have "caps" that govern how much the interest rate may rise between adjustment periods, as well as how much the rate may rise (or fall) over the life of the loan. For example, an ARM may be said to have a 2% periodic cap, and a 6% lifetime cap. This means that the rate can rise no more than 2% during an adjustment period, and no more than 6% over the life of the loan. The lifetime cap almost always applies to the calculated interest rate and not the introductory teaser rate.

PAYMENT CAPS AND NEGATIVE AMORTIZATION
Some ARMs also have payment caps. These differ from rate caps by placing a ceiling on how much your payment may rise during an adjustment period. While this may sound like a good thing, it can sometimes lead to real trouble.