• Recommended Links

The TIL is a disclosure document, that goes over APR and total fees packaged into the loan. The TIL, allows the borrowers to compare “apples to apples” with different mortgage loans. APR has no effect on the payment amount just the amount of fees financed into the loan.

The Truth In Lending (TIL) will also show the payment schedule for you loan. If you have a Fixed Rate Loan the TIL will show you what your Principal and Interest payments will be for the entire loan. If you have an Adjustable Rate Mortgage (ARM) the TIL will show what the payments are during any fixed period and an estimate of what may happen during the adjustable period. The TIL also shows the total amount of all payments on the loan. It is common for this number to be two or three times the original amount of your loan.

One of the information on the Truth-in-Lending disclosure form that draws the most attention is the Annual Percentage Rate (APR). The APR is almost always higher than the interest rate the loan officer quotes at application. One need not be alarmed. This is due to the fact that the APR is calculated by adding other fees that are associated with the mortgage process, such as underwriting fee and processing fee, to the qualifying interest rate. The APR is not used for calculation of the monthly payments. It is only meant to show the total cost of the loan, with the applicable fees included.

The APR is what you should use to compare mortgages if you are shopping. This will take into consideration any fees and points that are being charged. If you compare 2 lenders on the same loan amount and interest rate, the lower APR will tell you which loan you are being charged less fees on.

The APR on the Truth in Lending statement can be a bit misleading for customers as the underlying formula used to calculate Annual Percentage Rate on mortgages incorporates many fees which are not amortized into the loan. Please discuss this point with your loan officer or mortgage banker.

Depending on which state you live in, your mortgage professional may be required to provide you with a TIL Disclosure within three business days from the day you filled out an application for a mortgage.

The TIL is a document that is better used for comparing loan programs versus just comparing interest rates because you are taking into consideration all costs of acquiring the loan. One thing to look at closely is what items are checked marked on the GFE to be included in the Annual Percentage Rate on the TIL. The fees which need to be included in the APR are outlined by the federal government but that doesn’t mean that every broker is using the guidelines properly.

Always check your TIL for whether or not you have a pre-payment penalty.

Mortgage lenders are required to give you a truth in lending (TIL) statement containing information on the annual percentage rate, the finance charge, the amount financed, and the total payments required.

Editors Note: Due to the mortgage and credit crunch, many down payment programs are no longer be available. If you’re in need of a Denver mortgage contact us to discuss your mortgage options.

There are many acceptable ways to obtain some additional funds for a down payment and closing costs. First time home buyers and investors are more recently applying for 100% financing. If you have funds for a down payment and/or closing costs, this can help to reduce your interest rate.

A Secured Line of Credit such as a Home Equity Line of Credit (HELOC) can be used as a source of funds.

If down payment money is hard to raise for you and your family, talk to us about 100% financing and seller’s concessions.

If you are relocating at the request of your employer, find out if your company offers programs to assist in paying for part of the down payment and closing costs. Many large corporations have such programs as employee benefits. Even if you work for a small company that does not have such programs in place, you may still be able to negotiate for some relocation assistance.

The Genesis and Enterprise are two other programs that will help with down payment assistance. Some of the down payment programs are set up where they put a lien on your property for a certain period of time such as 5 years. As long as you own the property for this amount of time the lien will be released.

Each type of mortgage and lender has different guidelines for what are allowable sources for down payments. Consult with your mortgage broker as to what is the best place to start and how to track the funds for approval.

There are also programs available through non-profit and/or your local, state or federal government called Down Payment Assistance (DPA) programs.

Honesty is the best policy when getting a mortgage. Watch out for anyone who asks you to withhold information from the lender. Some home buyers might be tempted, for example, to fudge the facts about the source of their down-payment money. A lender will assume that the down payment comes from savings. If the money comes as a gift or a grant, that fact has to be disclosed — even if it means the borrower has to pay a higher interest rate or shell out for mortgage insurance.

Family is a great place to start. Talk to your immediate family, parents, brothers, sisters, grandparents, etc. they may be able to help you out with a Gift of funds. This Gift is not a loan, and they will often have to fill out a Gift Letter stating where the funds are coming from and how they are related to you. In some cases a bank statement from them may be required to source the funds.

Many states and cities have bond programs that provide down payments for homebuyers.

A good source for a down payment is money that people with 401k’s have already saved. Using money in a 401k for a down payment on a home, if done wisely can be just a good of an investment in their future. Real Estate normally is a low risk investment when compared to other types of investments. Homes usually appreciate over time under normal conditions. This appreciation over time can often outpace the gains made in a retirement account.

Another source for down payment assistance are grant assistance programs such as the Nehemiah program that you do not have to pay back! You can get as much as 6% down of the final contract sale towards down payment or closing costs.

A form of mortgage in which the lender makes periodic payments to the borrower, using the borrowers equity in the home as security. For older owners who have a lot of equity in their home, this can be used as income. The loan does not need to be repaid until the borrower sells the property or moves into a retirement community.

When you sell your home or no longer use it for your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest and service fees. Any remaining equity belongs to you or your heirs. It’s important to remember that you can never owe more than the home’s appraised value when it is sold. None of your other assets will be affected by your reverse mortgage loan.

Reverse mortgages are a great way for an elderly person or couple to supplement income, especially if they are only getting social security as retirement income.

Any principal and interest accrued over the life of the loan is due and payable in one lump sum when the last borrower in the home is no longer the primary resident. In most cases, the amount that is due can be paid either by the selling of the home (where the difference of the selling price and remaining debt is left with the heirs), or refinancing the reverse debt with a traditional mortgage.

This is a great income supplement for those who need it.

A reverse mortgage is an agreement allowing a homeowner to borrow against home equity and receive tax-free payments until the total principal and interest reaches the credit limit of equity.

In reference to the HECM (most popular reverse mortgage), the fees associated with this loan are as follows: 1) Maximum of 2% origination fee based on the lesser of FHA’s lending limit or the home’s appraised value; 2) Closing costs such as title, escrow, appraisal, etc; 3) 2% charged by HUD on the lesser of lending limit or home value for initial mortgage insurance premium; 4) Monthly servicing fee of between $25 and $30 that is set aside initially and added to the loan balance as the loan progresses.

Loan to Value calculations, Credit requirements (FICO scores), and Debt to Income calculations are not used in determining how much a borrower can access in equity. For the HECM program, the amount that can be borrowed is based on the lesser of home value or lending limit, age of youngest borrower in the home, and an interest rate.

A Reverse Mortgage is a financial tool which provides seniors 62 years of age and older with funds from the equity in their homes. Generally speaking, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.

There are currently 3 reverse mortgage programs available. The most popular reverse mortgage program is the FHA insured Home Equity Conversion Mortgage (HECM). The second program is the Fannie Mae Home Keeper, and the third is a jumbo reverse mortgage (cash account) offered by Financial Freedom. With the exception of the Home Keeper, the HECM and the Cash Account can be structured in different ways (i.e. interest rate adjustment for HECM, point variation on the Cash Account).

Possible income source for those who are on social security or limited fixed income.

A Reverse Mortgage borrower cannot be forced out of his/her home. Nor will he ever owe more than the value of his house. Reverse Mortgages are “non-recourse” loans, meaning in the rare case of drastic declines in home prices, the homeowner can never be held liable beyond the value of the subject home.

A reverse mortgage allows homeowners that are 62 and older to unlock a portion of the equity in their home without having to make a monthly repayment. The amount that they can unlock will be determined by a combination of three things: 1)Youngest borrower’s age 2) Lesser of their home’s value or a lending limit (HECM and FNMA) 3) An interest rate.

There are three basic types of reverse mortgage are: single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.

Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.

You can get your money in a lump sum or monthly payments.

There are no credit requirements. Only that you need to 62 years of age or older and have sufficient equity.

You maintain complete ownership of your home.

If you are a senior at least 62 years old who is “house rich, but cash poor”, a reverse mortgage may be a viable option to help get you the cash you need. Whether paid to you in lump sum or in installments, reverse mortgages require no payments from your side and are generally not taxable and generally don’t impact social security or Medicare benefits.

Because this loan must be the first lien on the home, any existing mortgage balance must be paid with the proceeds of the reverse mortgage. For instance, if the amount that can be borrowed from the reverse is $100,000 and the existing mortgage balance on the home is $50,000, the $50,000 will be paid with the amount available from the reverse ($100,000) and the remaining balance ($50,000) will be available to the homeowner. The homeowner can elect to convert the $50,000 into a monthly payment, place it in a line of credit, take any or all of the amount at closing, or any combination of the three.

The amount of cash that a borrower can receive is based on a formula of factors that include age of the youngest borrower, the interest rate, value of the home and the county where the home is located.

Acronym for the elements of a mortgage payment: principal, interest, taxes and insurance.

Lenders qualify a borrowers Debt To Income ratio (DTI) using Principal Interest Taxes and Insurance (PITI) combined even though some borrowers only want to pay the principal and interest to the lender and pay the taxes directly to their local government and insurance directly to their insurance provider.

Principal is the amount of money you borrowed from the lender. Interest is a fee you pay back to the lending institution for borrowing the money. Taxes indicate your property taxes, these include items like your city tax, county tax and school education tax. Insurance is the coverage you have on you house to protect you from loses.

PITI is typically quoted on a monthly basis and compared to a borrower’s monthly gross income by means of computing the individual’s front-end and back-end ratios, which are used to approve mortgage loans.

Other monthly payments that are included in the PITI include Mortgage Insurance and Home Owners Association (HOA) dues.

Although lenders require reserves of PITI even when refinancing, many lenders will allow the cash out amount from the refinance, to cover the PITI reserves.

Another factor that some people over look which is not a part of your PITI is your maintenance on your home. You will need to make sure you can afford things like yard work and simple repairs when taking out a loan on a property.

Lenders often require cash reserves equal to several months PITI, in order to qualify a borrower.

Investment properties often require a minimum of 6 months PITI reserves for a mortgage, primary properties may not require any reserves depending upon credit, and many subprime lenders do not require any reserves.

The total PITI payment is used to calculate qualifying factors such as your debt ratio and the amount of cash reserves that may be required on a loan. Even if a borrower chooses to waive an escrow account and pay the taxes and insurance themselves.

PITI is the total monthly payment that must be made for that mortgage loan. Many times taxes and insurance are only estimated by the mortgage broker giving a quote which is why different good faith estimates vary so much from broker to broker. Always ask for the PI payment to compare loan programs as well as the APR which includes the real total cost of the loan.

Lenders use the proposed PITI together with the borrower’s income to evaluate the borrower’s capability to repay the loan.

Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Nonconforming loans usually incur a rate and origination fee premium.

With the emergence of new lenders and programs to the mortgage market on a weekly basis there is a loan program for just about anyone whether conforming or non-conforming. Just check with you online Mortgage Professional to see what you qualify for.

Conforming loan limits will adjust to $400,000 in most states in December.

A Non-conforming loan simply means a loan that is outside of the standard guidelines set by Fannie Mae and Freddie Mac (the two government-sponsored enterprises that insure loans on the secondary mortgage market). Non-conforming loans have no set guidelines and vary widely from lender to lender. But most often non-conforming loans are mortgages that have larger loan balances, require less documentation, and have flexible credit score requirements. These loans carry an additional risk to the lender and as such the rates are higher.

Non-conforming loans have less stringent rules on fees that can apply to your loan, so review the details carefully.

The demand for nonconforming loans is gaining strength at just about the right time. Its growing presence is throwing lifelines to a record number of perplexed homeowners facing higher sales prices or stiff documentation requirements.

Non conforming loans has strict loan-to-value guidelines.

Conforming loans are available now with Stated Income, Stated Assets or “SIVA”

A Non Conforming Loan is a loan with an unpaid principal balance or an unexpired term that exceeds lending limitations established by the principal purchasers and guarantors of the secondary mortgage market; the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association.

Jumbo loans are one type of non-conforming loans, due to the loan amounts exceeding the maximum limits adopted by FNMA and FHLMC. Besides exceeding the loan amount limits, loans can be non-conforming for other reasons, such as the borrower’s credit profile, income/employment situations, cash reserves, property type, etc.

Non-conforming loans typically have a higher rate and different requirements for your down payment.

As a general rule, homes appreciate about four or five percent a year. Some years of course will be more and some less. The figure will vary from neighborhood to neighborhood, and from city to city. Five percent doesn’t really seem like that much at first. You could earn the same return with a very safe investment in treasury bills or bonds. But take a second look…If you bought a home that costs around $200,000 and put down 20% that would mean your initial investment would be $40,000.At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual “return on investment” (ROI) would be a whopping twenty-five percent. And because the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase. Your rate of return when buying a home is higher than most any other investment you could make.

Real estate appreciation refers to an increase in value of your home and the property. When your property “appreciates” you have greater equity against which to borrow, and you realize a greater profit when you sell. the economy is the driving factor of real estate appreciation in the U.S. That includes interest rates as well as the current employment rate, business growth in the area, housing supply and demand and affordability.

Many people new to the housing market have become so accustomed to home appreciation that they forget that there is never any guarantee of housing appreciation. It is controlled by market forces and subject to twists and turns in the market like any other commodity. However, when you look at the past 20 years or so, especially in areas such as California, the housing market has outperformed just about any other investment vehicle.

Making sure that you have the right mortgage product in the right Real Estate environment is part of your mortgage brokers job.

The time you plan on spending in the particular home will be a major factor in determining if the appreciation, will net you the profit, you feel is necessary for your investment. Typically, the longer you own the home, the more it will appreciate.

Home appreciation is more prevalent in certain areas of the country. Appreciation should be taken into account when determining the type of mortgage an applicant should apply for. Applicants should discuss his with their real estate agent and a mortgage professional before purchasing a home.

Real Estate appreciation has statistically been the most consistent investment over the past two decades.

Some loan programs, such as the option ARM loan, have a “negative amortization” feature. What this means is that you are paying an amount on your mortgage that is less than the interest you owe for the month. When this happens, the unpaid interest for the month is added to your total loan amount. This can be a dangerous thing for many people, because they can actually lose equity on their home, even though their home is still appreciating. When you sell your home, you can actually end up still owing money on the loan.

Other sites: Mortgage Broker | Delinquency | What not to do after you apply for a Mortgage | Mortgage banker | Protect Yourself from the Real Estate Bubble | Why should I refinance | 1003 The Loan Application| Pay Option Arm Calculator

Editors Note: Due to the mortgage and credit crunch, down payment requirements have increased. If you’re in need of a Denver Home Loan contact us to discuss your mortgage options.

Many buyers look at their cash on hand as their only source for their down payment. This simply is not the case. One way to fund or partially fund a down payment is by using a gift. Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home. There are also down payment assistance charities that can help you. And, of course, if you are selling a home, the equity you’ve built up can be applied to your down payment.

Another good source for a down payment is to borrow against your employer’s retirement plan.

Many states and counties offer down payment assistant programs for homebuyers. Government down payment assistant programs often have some restrictions, such as the homebuyer must not own any other properties, and the property being purchased has to be the home buyer’s primary residence, etc. Many programs also stipulates that if the homeowner sells the property at a profit or refinances the mortgage to withdraw cash within a certain number of years, the homeowner must repay all or a portion of the funds he received as down payment assistance.

Lots of Gift programs out there. Nehemiah(sp), heart program etc. Just make sure that if it is not an FHA loan that the HUD does not disclose where it is coming from. I had this conversation with Argent and a few other lenders recently and they just do not want to see it on the HUDS that it came from one of these places. Otherwise you are fine. All they want to see is certified funds. FHA, on the other hand, doesn’t care. These programs were designed around FHA and FHA loves them so you can do a 100% FHA loan instead of a 97%.

Often the lender will require the Gift fund to be seasoned or have been in the bank for a certain amount of time.

For those with good credit scores there are 103% programs available. There is no down payment and the 3% is used to cover closing cost. As you can see there are many sources for down payments that you may not be aware of. If you want to buy a home and do not have down payment money available go ahead and contact your mortgage broker and he/she can help you decide what might be best for you.

For borrowers with good credit who can qualify for 100% financing, it may be worth considering speaking to the seller about a seller’s concession to help with up front cash requirements.

Some companies have down payment assistance programs for employees who are relocating at the request of the employer. Others offer low interest rate loans to employees to be used as part of a down payment. Even at companies that have no such programs in place, some may be willing to offer some form of assistance.

Colorado Down Payment Assistance Programs Arapahoe County Home Ownership Program (HOP)$20,000 (303) 738-8065 Aurora Home Ownership Assistance Program (HOAP)$10,000 (303) 360-0053 Colorado Housing Assistance Corporation Creating Affordability Now 65% to 80% AMI Down Payment Program (CAN)$5,000 (303) 572-9445 Colorado Housing Assistance Corporation Creating Affordability Now Below 65% AMI Down Payment Program (CAN)$5,000 (303) 572-9445 Colorado Housing Assistance Corporation Down payment Assistance Disability Program (DAP)$6,000 (303) 572-9445 Colorado Housing Assistance Corporation Federal Home Loan Bank Program (FHLB)$3,500 (303) 572-9445 Colorado Housing Assistance Corporation Mortgage Assistance Program (MAP)$5,000 (303) 572-9445 Colorado Springs Affordable Homeownership Program (AHP)$10,000 (719) 387-6714 Del Norte Neighborhood Development Corporation Savings Plus Individual Development Account Collaborative (IDA)$10,000 (303) 477-4774 Denver City and County - Newsed Community Development Corporation Barrio Aztlan Homeownership Program (HAP)$10,000 (303) 534-8342 Denver County Colorado Housing Assistance Corporation (CHAC) Barrio Azatlan Home Ownership Program (BAHOP)$10,000 (303) 572-9445 Denver Del Norte Neighborhood Development Corporation Barrio Aztlan Home Ownership Program (HOP)$10,000 (303) 477-4774 Eagle County Down payment Assistance Program (DAP) 5 Year Deferral$10,000 (970) 328-8771 Eagle County Down payment Assistance Program (DAP) Monthly Interest Payback$10,000 (970) 328-8771 Eagle County Down payment Assistance Program (DAP) Property Appreciation$10,000 (970) 328-8771 Fort Collins First Time Home Buyer Grants Program$9,000 (970) 221-6595 Glenwood Springs Board of Realtors Affordable Housing Fund (AHF)$2,000 (970) 945-9762 Jefferson County Stride Home Ownership Program (HOP)$5,000 (303) 275-3450 Larimer County Home Ownership Program (LHOP)$7,900 (970) 667-3232 Longmont/Boulder County Down Payment Assistance Program (DPA)$9,000 (303) 441-3987 Multi Counties West Central Housing Development Organization Regional Ownership Assistance Down Payment Program (ROAD)$11,800 (970) 874-8204 Multi-Counties Del Norte Neighborhood Development Corporation Savings Plus Individual Development Account (IDA)$3,000 (303) 477-4774 Northeast Colorado Housing Inc. Homeownership Down Payment Assistance Program$5,000 (970) 542-0955 Pueblo County HOME Down payment Assistance Program (HDAP)$25,000 (719) 584-0817 Pueblo Neighborhood Housing Services Repayable 2nd Mortgage Program (SMP)5,000. (719) 544-8078 San Miguel County- San Miguel Regional Housing Authority Down Payment ampersandamp; Closing Cost Assistance Program (DPCC)$10,000 (970) 728-3034 Summit County - Town of Dillon Employer Assisted Housing Program (EAHP)$10,000 (970) 468-2403 Summit County Down Payment Assistance Program (DPA)$11,772 (970) 453-3557 Summit County Employee Housing Assistance Program (EHAP)$10,000 (970) 453-3404 Summit County Summit Housing Authority Down payment Assistance Program$3,000 (970) 453-3557 Weld County, High Plains Housing Development Corporation Down payment / Closing Cost Assistance Program (DAP)$4,000 (970) 352-1551

In addition to the government sponsored down payment assistance programs, there are many non-profit organizations that will grant you your down payment. You should ask your mortgage broker what program is right for you.

Other sites: Loan Officer | Consolidating Credit Card Debt into Your Mortgage| Pay Option Arm Calculator

Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.

If you are currently in the tail end of the fixed period in your Adjustable rate loan, often 2 years, 3 years or 5 years after you took it out, this may be the best time to get a fixed rate mortgage refinance and lock in your rate while it is low. While mortgage rates rise and fall, the current market outlook is that they will continue to increase over the next couple of years, and you don’t want to be stuck paying a lot more money for a couple of years when you have the opportunity to refinance ARM into fixed rate mortgage today.

There are many Adjustable Rate Mortgage products available today. Some ARM products have rates that adjust immediately the following month after settlement, others have an initial fixed rate period of 1, 3, 5, 7, or 10 year. ARM that has an initial fixed interest rate period is also known as Hybrid Loans.

When choosing an ARM product, it is as important to consider the underlying indices and margins as picking the lowest teaser rates. Different indices have different sensitivity to the interest market. In other words, some indices such as Treasury bills and LIBOR are highly sensitive to market conditions and adjust rapidly. The 11th District Cost of Funds Index, also known as COFI, tends to move slower in comparison and therefore less volatile.

ARM products almost always have an initial interest rate that is lower than that of fixed rate products of the same loan term. These lower starting rates, also refereed to as Teaser Rates, are meant to induce/reward borrowers who are willing to bear some of the risks of future interest rate movements.

ARM’s are great for keeping your payment down for a fixed period of time while you work on your FICO score and aim for a better fixed rate down the road.

Some ARM loans have an interest only option. These loans are very popular with people who do not plan on staying in the home for a long period, want to qualify for a larger home and investment properties to increase cash flow due to the lower payments.

Other ARM product features that need to be considered include the Period Adjustment Caps which limits the maximum rate change allowed at an given adjustment, the Floor, which is the lowest possible rate of the loan, regardless of the value of the underlying index, and the Life Time Cap, which sets a ceiling for the maximum rate of interest throughout the life of the loan.

An ARM, short for “adjustable rate mortgage”, is a mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a period at the beginning, called the “initial rate period”, but after that it may change based on movements in an interest rate index. The ARM rate quoted by a lender or broker is the initial rate. It holds until the end of the fixed-rate period, which can last from a month to 10 years. This rate is critically important if the initial rate period lasts for 10 years, but it is very unimportant if the period is only one month. On the most popular ARM program, the initial rate period is 12 months, and on more than half the period is 36 months or less. While you can always opt for an ARM with a longer initial rate period, the rate goes up as the period lengthens. If you need the rate on a one-year ARM to qualify, you must consider very carefully what happens after the fixed-rate period ends.

An adjustable-rate mortgage (ARM) with an initial fixed-rate period of pre-determined years, during which the borrower is may have an option to pay only the interest accrued on the loan. The interest rate then adjusts annually or bi-annually, based on the indexes such London Inter-Bank Offered Rate (LIBOR) index, and can move up or down as market conditions change.

ARMS have caps so the borrower is protected by a maximum adjustment the lender can make over the term of the loan. This information should be clearly identified in the Truth in Lending statement (TIL) which should be given with the Good Faith Estimate (GFE).

ARM loans come with different initial fixed rate periods such as 1 2 3 or 5 year fixed. After the initial period they will start to adjust according to the index they are tied to. What’s nice about ARM loans is it allows the borrower to have a lower payment initially. These type programs can be used for many reasons, one of them being for someone who won’t be living in a property for an extended period of time.

Is the ARM right for you? I can understand how the ARM can be confusing and I want to thank you for reading the information above. If you would like to continue this conversation than please contact me so you and I can discuss your financial situation. Please read more valuable information and when you feel comfortable I would like you to contact me.

The initial interest rate for an ARM is lower than that of a fixed rate mortgage, where the interest rate remains the same during the life of the loan. A lower rate means lower payments, which might help you qualify for a larger loan. There’s couple of questions that is very important when considering the ARM like; How long do you plan to own the house? The possibility of rate increases isn’t as much of a factor if you plan to sell the home within a few years. Do you expect your income to increase? If so, the extra funds might cover the higher payments that result from rate increases. Some ARMs can be converted to a fixed-rate mortgage. However, conversion fees could be high enough to take away all of the savings you saw with the initial lower rate.

An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes.

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how often the rates can increase and by how much. Try to determine whether you can afford payments if the rates go up significantly over the next few years.

“American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage,…To the degree that households are driven by fears of payment shocks, but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.”- Alan Greenspan, the Chairman of the Federal Reserve Board at the Credit Union National Association 2004 Governmental Affairs Conference

Most lenders tie ARM interest rate changes to changes in an “index rate.” These indexes usually go up and down with the general movement of interest rates. If the index rate moves up, so does your mortgage rate in most circumstances, and you will probably have to make higher monthly payments. On the other hand, if the index rate goes down your monthly payment may go down. Lenders base ARM rates on a variety of indexes. Among the most common are the rates on one-, three-, or five-year Treasury securities. Another common index is the national or regional average cost of funds to savings and loan associations. A few lenders use their own cost of funds, over which–unlike other indexes–they have some control. You should ask what index will be used and how often it changes. Also ask how it has behaved in the past and where it is published.

Adjustable rate mortgages or ARMs have Interest Rate Caps. Rate caps limit how much interest you can be charged over a period or over the life of a loan. - A Periodic rate cap limits the amount by which your interest rate may increase at the adjustment period(s). Only some ARMs have these period caps.- Overall or lifetime rate caps limit how much rate can change over the life of the loan. Lifetime or overall caps are required by law and have been required by law since 1987 on all Adjustable rate mortgages.

ADJUSTABLE-RATE MORTGAGE (ARM)A mortgage loan where the interest rate is not fixed for the entire term of the loan, and can change during the life of the loan in line with movements of an index rate.

If your ARM has started to adjust, it might be a good idea to refinance into a fixed rate loan.

2/28 ARM is a great product. Especially for 1st time home buyer or subprime borrower. Allows them to strengthen credit over the two year period.

An Adjustable Rate Mortgage (ARM), will carry a lower initial interest rate than a typical 30 year fixed rate mortgage. The lender is hoping that you will forget about the adjustment, and just continue to hold on to the loan. Be aware of when your loan is due to adjust, as well as by how much it will adjust.

If one or more of these situations describes you, an ARM might be a good fit: -You plan to stay in your home for a relatively short period of time -You want lower initial monthly payments and can handle potential payment increases in the future -You want to qualify for a larger mortgage amount, and you expect your income to go up over time

It has been shown, that home owners would have saved thousands of dollars if they had a ARM of a conventional 30 year fixed.

When should you take an ARM mortgage vs. a traditional 30 year fixed? Consider how long you plan on occupying the property. If it is for 10 years or more then a 30 year fixed may be the best bet when interest rates are low. However, if you plan on moving sooner then consider the extra savings you will achieve by choosing an ARM. For example, you plan moving when your child is old enough to go to school in three years. The best financial choice would to get a 3 year or possibly a 5 year ARM. When a 30 year fixed mortgage is around 5.875% a 5 year ARM is around 5.25% and a 3 year ARM would be about 5.00%. On a $200,000 loan the monthly payments would be $1183 for a 30 year, $1104 for a 5 year ARM, and $1073 for a 3 year ARM. Times that by 3 years, 36 months, and your savings for an ARM vs. a 30 year fixed would be between $2800 - $3900. Money better spent elsewhere.

If you only plan on living in your home for a few more years, it might not be worth it to move from a program like a low rate ARM or an Interest Only Program to a traditional Fixed Rate loan. There may be better things to put your money towards each month that putting a few extra dollars towards the principal of your home.

Next Page →

• Denver Lender LLC

  We are a mortgage company located in Denver, Colorado. Click here to compare mortgage rates.
  

• Search for:

• Tags

  adjustable rate mortgage appraisal colorado commercial compare consolidation construction conventional credit score debt denver fha first mortgage first time home buyer fixed rate mortgage foreclosure home equity home equity loan home loan investing jumbo lending loan amount meltdown mortgage mortgage backed securities negative amortization prepayment prime property purchase rate rate increase real estate refinance reverse mortgage second mortgage shopping stated income Subprime va value

• Recent Posts

  • No Country for Mortgage Brokers
  • File under…
  • Monday Morning Quarterback
  • Keeping up with…
  • Video: The Subprime Meltdown of 2007
  • Pavilions, Argonaut, and more
  • Why don’t we save?
  • Spanning the web
  • Mad World
  • What will 2008 bring…

• Legal

  The content provided on this website is presented for informational purposes only. The information provided on this website should not be construed as offering legal, financial or other advice to be relied on by the reader to make or refrain from making any decision or to take any action. The investment, mortgage or financial services or strategies mentioned in and throughout this website may not be suitable for you.