How are interest rates determined?

Interest rates fluctuate based on changes in the yield of mortgage-backed securities, most commonly referred to as Fannie Mae, Ginnie Mae and Freddie Mac securities. Changes in the 30-year interest rates closely follow changes in the yield of the 10-year United States Treasury Bond as well as changes in yields of mortgage-backed securities. Interest rates on mortgages fluctuate daily and often, within a given business day.

Is comparing APRs the best way to decide which lender has the lowest rate and fees?

The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing by requiring that some, but not all, closing fees are included in the APR calculation. These fees in addition to the interest rate determine the estimated cost of financing over the full term of the loan. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up-front costs over the entire loan term.

Also, unfortunately, the APR doesn't include all the closing fees, and lenders are allowed to interpret which fees they include. Fees for things like appraisals, title work and document preparation are not included even though you'll probably have to pay them.

For adjustable-rate mortgages, the APR can be even more confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.

You can use the APR as a guideline to shop for loans, but you should not depend solely on the APR in choosing the loan program that's best for you. Look at total fees and possible rate adjustments in the future if you're comparing adjustable-rate mortgages, and consider the length of time that you plan on having the mortgage.

Don't forget that the APR is an effective interest rate – not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.

Is there a fee charged or any other obligation if I complete the online application?

There's no cost at all for completing our application. You may wish to pay the cost of the appraisal online with a credit card. Once we order an appraisal on your behalf, you are responsible for that cost.

What is mortgage insurance, and when is it required?

First of all, let's make sure that we mean the same thing when we discuss "mortgage insurance." Mortgage insurance should not be confused with mortgage life insurance, which is designed to pay off a mortgage in the event of a borrower's death. Mortgage insurance makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with low down payment lending. By purchasing mortgage insurance, lenders are comfortable with down payments as low as 3 to 5% of the home's value. It also provides you with the ability to buy a more expensive home than might be possible if a 20% down payment were required.

The mortgage insurance premium is based on loan to value ratio, type of loan and amount of coverage required by the lender. Usually, the premium is included in your monthly payment, and one to two months of the premium is collected as a required advance at closing.

It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount – below 75% to 80% of the property value. Recent federal legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance has been amortized down to 78% of the original property value. If you have any questions about when your mortgage insurance could be cancelled, please contact your Loan Officer.

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