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Q
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What's the difference between a Fixed Rate loan and an ARM (adjustable-rate mortgage)? |
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A
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With a fixed-rate mortgage, the interest rate stays the same during the life of the loan.
With an adjustable-rate mortgage (ARM), the interest rate is usually fixed for an initial period, typically 1, 3, 5, 7 or 10 years and then changes annually.
While the monthly payments on a fixed-rate mortgage are relatively stable, payments on an ARM will likely change. There are advantages and disadvantages to each type of mortgage, and the best way to select a loan product is by talking to us. |
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What is an index and margin? |
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An index is an economic indicator that lenders use, in conjunction with the margin, to set the interest rate for an ARM (adjustable rate mortgage).
The interest rate that you pay is a combination of the index plus a pre-specified margin.
Three commonly used indices are the One-Year Treasury Bill, the Cost of Funds of the 11th District Federal Home Loan Bank (COFI), and the London InterBank Offering Rate (LIBOR).
Example: Rate = 6.00% (margin of 2.75 + index of 3.25). The margin remains the same throughout the life of your loan but the index changes. When your rate is ready to change, typically 1, 3, 5, 7 or 10 years after your 1st payment, your new rate will be determined by adding the set or fixed margin and the current price of the index used with your ARM. |
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Q
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What is PMI or private mortgage insurance? |
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Mortgage insurance is required on conventional and jumbo loans for home buyers who put less than 20% down to purchase a home or for home owners with less than 20% equity in their home.
This insurance can be very costly depending on the loan and down payment and most home buyers or home owners would rather not pay it.
There are several ways to avoid paying PMI. Ask us if you qualify! |
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Q
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Which loan is best for me? |
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There is no simple formula to determine the best mortgage for you.
This choice depends on a number of factors, including your current financial situation, your goals and how long you intend to keep your house.
Consider these facts;
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If you plan to stay in your home; |
Recommended Program |
| 1-3 years |
3/1 ARM, 1 year ARM, 6 month ARM |
| 3-5 years |
5/1 ARM |
| 5-7 years |
7/1 ARM |
| 7-10 years |
10/1 ARM, 30 or 15 year Fixed |
| 10+ years |
30 or 15 year Fixed |
Flex Mortgage can help you evaluate your choices and help you make the most appropriate decision. |
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Q
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What does my mortgage payment include? |
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A
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For most homeowners, the monthly mortgage payments include four separate parts:
- Principal: Repayment on the amount borrowed
- Interest: Payment to the lender for the interest charged
- Taxes & Insurance: Payments for these items are normally made into an escrow account with the lender. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and Hazard insurance company.
- Mortgage Insurance: Payments are normally made into an escrow account with the lender. Mortgage insurance is typically required when your down payment is less than 20%.
Talk to us about ways to avoid paying mortgage insurance! |
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Q
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How much money do I need to purchase a home? |
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The amount of money necessary depends on a number of factors.
Generally speaking, though, you will need to supply:
- Earnest Money - The deposit that is supplied when you make an offer on the house
- Down Payment - A percentage of the cost of the home that is due at settlement
- Closing Costs - Costs associated with processing and approving your loan, title or escrow charges, pre-paid interest, property taxes and hazard insurance.
Talk to us about Zero Down Programs or our Flex One program! |
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What's the difference between a normal mortgage payment and an interest only loan? |
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A normal or typical mortgage payment includes principle and interest (your loan payment), property taxes, hazard insurance (home owner's insurance) and sometimes mortgage insurance.
The principle and interest portion of your payment is used to pay the monthly interest charged and reduce your loan balance each month.
With an interest only loan, the above payment description does not include the principle portion. This means that you are only required to pay the interest charged each month and your loan balance is not reduced or paid down each month.
Interest only loans are best suited for commissioned or self-employed borrowers who need a flexible cash flow solution and aren't on fixed incomes.
Interest Only loans assume that your home will appreciate in value before you sell your home, allowing you to gain equity through appreciation.
Although interest only loans only require you to pay the interest charged, you do have the option of making principle reduction payments as often as you'd like. |
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How do I know how much I can afford? |
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Generally speaking, you can purchase a home with a value of two or three times your annual household income.
However, the amount you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make, if any.
You may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value or no down payment.
Give us a call or Apply Online and we can help you determine exactly how much you can afford. |
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