Mortgage Rate Basics
Your mortgage broker and I will help you explore and understand which loan types will best suit your home purchase situation. Some terms that you should be familiar with are the following:
- Interest Rate: The interest rate is the percentage of your loan you are charged to borrow money to buy your home. Your rate is determined by down payment, credit score, current market conditions and type of mortgage.
- Discount Points: One point equals 1% of the mortgage amount on the loan. If you qualify, you may be able to pay more points to lower the rate. Points are usually tax deductible.
- Origination Charge: All charges (other than discount points) that are required to originate the loan such as fees, document prep and underwriting.
- Loan Term: Amount of time to pay off mortgage balance.
- Principle: The amount of money that is borrowed.
- PITI: Principal, Interest, Taxes, Insurance… the four cost components per month that make up most mortgage payments.
- Fixed Rate Mortgage: Your interest rate and monthly payments remain the same over the life of the loan. There are a variety of loan terms available. Protection from rising interest rates over the life of the loan is a benefit. Makes budgeting easier. May be a good choice if you are staying in your home long term.
- Adjustable-Rate Mortgage: Your principal and interest payments remain the same for an initial period of time of 3, 5, 7 or 10 years, then they generally adjust annually. Generally, your interest rate will be lower when the loan begins and then adjusts up at the end of the prescribed fixed years. Loans are available for a variety of terms. If you plan to only own your home for a short period of time, this program may fit your needs.
- FHA Program: This is a popular loan program that requires down payments as low as 3.5% and tends to have flexible income, debt and credit requirements. This program comes in a variety of fixed and adjustable programs. A co-applicant who will not be living in the home can help you qualify and the loan is assumable when the property is sold.
- VA Program: If you are an eligible service member (veteran, reservist, active duty personnel or eligible family member), this loan may the best one for you. With no-down-payment options available or mortgage insurance requirements, plus a variety of loan options – it is well worth investigating this program option.