FAQ’s What is a mortgage?
A Mortgage is a lien on the property that secures the Promise to repay a loan. Why should I chose Members Mortgage Corp. “broker” over a bank?
In choosing Members Mortgage you will receive a lot more personalized service. Members Mortgage Corp. evaluates your financial situation and will connect you with the lender that is right for you. What are the benefits of owning real estate? Some major benefits include:
· an incredible return on investment,
· lowered taxation,
· equity preservation,
· security of owning your own piece of the world,
· the ability to pass along property to future generations. For first-time buyers, buying a home means paying rent to yourself while preserving your initial investment. For investors, buying real estate is a form of retirement planning or a diversified investment plan. At Members Mortgage Corp., we work to understand your needs and tailor a purchase strategy that meets your short or long-term goals. What is mortgage pre-approval and why is it important?
Before you know how much you can afford to spend on a new home, you need to consult with a mortgage broker. The next critical step is meeting with your mortgage broker to discuss your income and debt amounts to help you determine an affordable price range and a monthly mortgage payment. We recommend that you determine how much you can manage to spend before you consider purchasing a new home. Pre-approved buyers are more appealing to sellers—it means you are ready to place an offer. What is a fixed rate mortgage?
Fixed Rate Mortgage - A mortgage with an interest rate that stays the same (fixed) for the life of the mortgage. Monthly payments for a fixed rate mortgage are very stable. What is an adjustable rate mortgage?
Adjustable Rate Mortgages (ARM) are mortgage programs offering lower fixed rates for a limited period of time after which the interest rate will adjust. These loans are often quoted as a 3/1 or 7/1, where the first number represents the initial fixed rate period and the second number represents the frequency at which the rate will adjust after the fixed rate period. Most lenders offer initial fixed rate periods for 1, 3, 5, 7 and 10 years after which the rate will adjust every 1 year thereafter. For example: a 3/1 ARM with a rate of 6.00% indicates a fixed rate for 3 years at 6.00% which will adjust every 1 year thereafter. Hence, a 3/1 ARM. ARMs generally carry a lower rate of interest than a 30 Year Fixed rate mortgage. The trade off is the risk, after the initial fixed rate period, that the interest rate will increase over a period of time. What are Points?
When shopping for a mortgage, many lenders will quote you rates with points or you can ask for a rate with points. Each point represents 1% percent of the amount you are borrowing. Generally, paying one point should lower the interest rate on a loan 1/4%, 2 points should lower you rate 1/2% and 3 points should lower the rate 3/4%. Lowering the rate reduces your monthly principal and interest payment. What is Private Mortgage Insurance?
When making a down payment of less than 20% most conventional mortgage lenders require private mortgage insurance (PMI). This insurance protects the lender in the event of a foreclosure where the home sells for less than the outstanding mortgage. There are several companies which offer PMI and most lenders obtain coverage from one or more of these companies. There are several different types of PMI and each bank can set their own coverage requirements. Without getting technical, you should ask the following questions:
- Will I be required to pay PMI?
- What is the amount of PMI I will be paying monthly?
- How many months of PMI will I be required to pay at closing?
- Is there a minimum number of years required before I can request the PMI be dropped?
- How much equity must I have in my home for me to drop the PMI? (Most lenders will require you to pay the cost of a new appraisal to determine if you're eligible. This cost can vary from $250 to $300 at today's price.)
- Is any of the PMI I pay at closing refundable to me if I become eligible to drop the PMI?
When does it pay to refinance?
Many people erroneously believe that you must reduce your rate by 2% to justify refinancing. A 1% lower rate on a $100,000 mortgage can save you $70 per month. A ½% reduction on a $250,000 loan can save $87.50 per month. Refinancing requires the payment of certain fees to the lender as well as closing costs that are not paid to the lender. Lender fees may include appraisal, credit report, flood certification, processing, and others. Usually, these fees range from $600 - $750, assuming no points and no origination fee. Closing expenses include the cost of your attorney or title agent, title search, title insurance and other fees, and typically range from $1000 to $2000, depending on the loan amount. People refinance in order to obtain a lower rate of interest, to reduce the term of their loan, to take out equity, or to convert from an adjustable to a fixed rate. If you are refinancing a fixed rate loan to a new fixed rate loan of the same term and loan amount, the breakeven calculation is fairly simple. Calculate the difference in your current monthly payment for principal and interest and your new payment. Divide the result into the expected cost to refinance to determine the number of months to breakeven. For example, if you save $100 per month and our cost is $2000, the breakeven period is 20 months. If you plan to remain in your home more than 20 months, then you should consider refinancing. Keep in mind that some of the savings are the result of lengthening your term back to 30 years. Many people who refinance are seeking to reduce their interest rate and shorten the remaining term rather than to reduce their monthly payment. If you are 5 years into a 30 year mortgage, you may be able to refinance into a 20 year term with a monthly payment that is close to your current payment. If your monthly payment is $1200 for principal and interest and you reduce your term by 5 years, your savings is $72,000 over the life of the loan.
If you have an Adjustable Rate Mortgage and are paying the initial rate, you should estimate what your new payment will be after the first adjustment. In most cases, this will be 1 ½ to 2% above the initial rate. If you have a very good rate and many years before the first adjustment, the decision is not an easy one. If you have been paying PMI on your mortgage and your equity is now at least 20% of the current value of your home, you will save the cost of PMI as well. |
