Cash Management
for Business

  • Home Buying
  • Retirement & Savings

Frequently Asked Questions Regarding Home Loans

Home Loans

Frequently Asked Question

Regarding Home Loans

What is the difference between fixed-rate and adjustable rate mortgages?

A fixed-rate mortgage is a loan where the principal and interest payment never change during the life of the loan.

An adjustable rate mortgage is a loan where the interest rate can change periodically. The changes in the interest rate are tied to market rates that exist at the time the rate is changed. They usually offer lower initial interest rates than fixed-rate mortgages, but can adjust upward if interest rates go up. There is a predefined cap which defines how high the interest rate can adjust. Fixed-rate mortgages are beneficial to those who are on a fixed income (adverse to interest rate change) and those who prefer fixed payment schedules.

Adjustable rate mortgages are advantageous for those who do not plan to stay in their home for a long time, for those borrowers who do not qualify at higher fixed interest rates, and those who can financially handle fluctuating payments.

Top of Page

How do adjustable rate mortgages work?

There are many types of adjustable rate mortgages, but all have some common features.

One common feature of adjustable rate mortgages is an interest rate change that occurs after a stipulated number of payments have been made. The interest rate can increase or decrease depending on how the new interest rate is calculated. Typically, the interest rate change is based upon a predetermined index value and a margin. If a borrower currently has an interest rate that is pending adjustment, the new rate would be calculated by adding the current index rate and a margin. For example, if the borrower's current rate was 6.000% with a 2.000% margin, the new rate would be determined by adding the current index rate (5.000% as an example) to the margin. In this example the new interest rate would be 7.000%.

The maximum amount the interest rate can change during any adjustment period is usually fixed. This maximum adjustment is called the cap. Adjustable rate mortgages also have a lifetime cap, preventing the interest rate from exceeding a predetermined rate.

Top of Page

What is the APR (Annual Percentage Rate)?

This is not the note rate for which the borrower applied. It is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs, such as private mortgage insurance, loan discount, origination fees, and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Top of Page

What are points?

A point is a fee which represents one percent of the mortgage amount. By paying points up front, a borrower can lower the interest rate.

Top of Page

What is Private Mortgage Insurance (PMI) and why do I need it?

Private Mortgage Insurance (PMI) is obtained by the lender, but paid for by the borrower. It insures the lender against loss in the case of foreclosure.

If the borrower is putting less than a 20% down payment on a purchase or has less than 20% equity for a refinance, the lender will require private mortgage insurance. This allows the lender to take the risk of lending when the borrower has less equity in the property.

Top of Page

What is Loan-to-Value (LTV)?

Loan-to-Value (LTV) ratio is the percentage of the mortgage amount and the appraised value or sales price, whichever is lower. If the sales price is $100,000. and the appraised value is $102,000. and the mortgage amount is $75,000., the loan to value would be 75% ($75,000 divided by $100,000). The lender is lending 75% of the value of the property.

Top of Page

What are escrow accounts and how much do I need in my escrow account?

Escrows are payments made by a borrower to a mortgage lender for the purpose of paying the borrower's taxes, insurance, and other payments associated with home ownership. The mortgage lender is responsible for the timely disbursement of escrow funds to pay the borrower's bills as they come due.

Usually, a mortgage lender will collect the funds for placement into the borrower's escrow account with the borrower's periodic payment for principal and interest. An escrow account has sufficient funds if there is enough to pay all bills when they come due.

It is common practice for a mortgage lender to hold an escrow cushion for a borrower. The cushion is kept by a mortgage lender to assure that if the cost of any escrowed item were to increase in the future, there would be sufficient funds to pay all bills as they come due.

Top of Page

How do I apply for a home loan?

The applications are to be found under APPLY ON-LINE. Complete and transmit and upon receipt, a Loan Processor will follow up with any additional information needed.

If you prefer to have someone walk you through the process, please go to CONTACT US and choose the member of our staff covering your area. Our sales representatives are available days, evenings and weekends to meet with you in person or take an application over the phone. You pick the most convenient way for your busy schedule.

Top of Page

What is the difference between a Pre-qualification and Pre-approval?

A Pre-qualification is a method used by your lender to determine how much you will be eligible to borrow based on your "stated" income. Verification, credit check and documentation is not usually necessary, but may be required by some institutions. An application is not submitted at this time and is not a guarantee of approval.

A Pre-approval is a method used for determining your ability to afford a home by filling out an application, having your credit run and verifying your information. This method will establish your buying ability to get a home loan worth a certain amount even before you have actually found a home.

Top of Page

What is an Interest Only loan?

A non-amortized loan in which only interest is due at regular intervals until maturity, when the full principal of the loan is due.

Top of Page

What is the fee refund policy?

Fees are subject to change at any time and are "NON-REFUNDABLE." Any questions should be directed to the Mortgage Originations Department at 1-888-534-8979 x5450.

Top of Page