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Crossville
Tennessee - Cumberland Plateau
Loan
information for your Crossville Real Estate
What
mortgage loan is the best for me?
How to select the best loan when buying Crossville Real Estate
In order to make the best decision for yourself, it is important to
understand the differences between loan types and to speak to an experienced
loan officer that will be able to analyze your particular situation
and goals. Here is some info we put together for you to give you basic
information about a variety of loans.
Fixed
Rate Loans
are those loans that start at a specific interest rate and remain
at that rate no matter what happens in the financial markets. If your
rate in 6% the day you get your loan, it will be 6% until you pay
the loan off. Typically, fixed rate loans are written for a period
on 30 years (360 monthly payments), or 15 years (180 monthly payments).
Terms of 10 and 20 years are also available from some investors. In
a fixed rate loan, lenders charge a premium to hedge against inflation.
The borrower pays a premium to lock their rates for 30 years. It is
interesting to note that over the past few years, the median age of
a refinanced loan was just over 3.1 years. Nonetheless, long term
fixed rate products remain the dominant product, accounting for almost
80% of all loan originations in 2003.
With
an ARM (see below) rates change periodically, tracking the overall
economy and this enables lenders to charge lower initial rates. Most
people change their loans, either by selling their home or refinancing
it, and have thereby paid more for their mortgage than necessary.
Adjustable
Rate Mortgage (ARM)
Loans are more complex, as they have two components that determine
the interest rate, the index and the margin. The index is the rate
of a short term maturity, such as the Treasury bond or 6 month certificates
of deposit. The margin is a static value, usually between 2 and 3%,
which is added to the index to produce the fully indexed rate, which
is the one you pay. The amount that the interest rate can change is
limited to protect the consumer. It can usually only increase 2% per
year and 6 % over the entire life of the loan. Start rates for ARM’s
are typically significantly lower than for Fixed Rate loans. It is
not guaranteed that the rate will go up, it can stay the same and
in some cases decrease depending on financial market changes.
It
is important to discuss and fully understand the following factors
when considering an
Adjustable Rate Mortgage loan. Be sure to address each with your loan
officer before deciding to apply for one. These factors are:
Adjustment
Period A predetermined period of time. At the end of this
interval the interest rate is adjusted, based on the index. Typically,
this is an annual event.
Index The Standard used to track the change in the economy that will
determine the direction and degree of rate change. Some indexes are
less volatile than others.
Margin The percentage that will be added to the index to obtain the
rate that your loan interest will adjust too.
Annual
Cap The maximum amount the interest rate can increase per
year.
Lifetime Cap The maximum amount the interest rate can increase over
the life of the loan.
Hybrid Loans Hybrid ARM’s provide homeowners with a unique advantage
because they adjust like an ARM but have an initial fixed rate from
1, 3, 5 or 7 years. Often they are advertised an 5/1 or 7/1 ARM’s.
This can be “decoded” as meaning fixed for 5 or 7 years
and then adjusting once every year. Its popularity is increasing,
as borrowers become more knowledgeable of the mortgage market. The
start rate increase proportionally with the length of the initial
fixed period.
Interest
Only Loans
As the name implies, these are loans that are designed to have only
the interest generated by the loan paid on a monthly basis. A “fully
Amortized” loan, which is the traditional mortgage type, requires
both the interest and principle to be paid each month. By only collecting
the interest due each month, the monthly payments are reduced. This
loan appeals to those who are interested in maximizing their available
funds each month. It is also an excellent way to qualify for a higher
loan amount as the lower payments will result in a lower overall debt-to-income
ratio, often allowing a higher loan amount
Optional
Payment Flexibility is the key here!. Each month the lender informs
the borrower of three optional payments. First, there is the normal
principle and interest payment, which if paid each month would result
in a gradual decrease in the loan balance. Then there is the interest
only payment which pays the interest due for the month and leaves
the loan balance constant. Finally there is the deferred interest
(negative amortization) payment. The deferred interest payment is
based on an artificially low interest rate. The payment is not enough
to pay the full interest earned for the month. The unpaid interest
is added to the loan balance. Each time this option is selected, the
principle amount of the loan increases.
Balloon
Payment
After making payments for an agreed upon period of time, the entire
loan balance becomes due and payable. There is the possibility of
refinancing the loan at the time the balloon payment is due, but the
lender is under no obligation to refinance the loan. It is extremely
important that the borrower understands all of the term of this and
any other loan type.
What
mortgage loan is the best for me?
How to select the best loan when buying Crossville Real Estate
In order to make the best decision for yourself, it is important to
understand the differences between loan types and to speak to an experienced
loan officer that will be able to analyze your particular situation
and goals. Here is some info we put together for you to give you basic
information about a variety of loans.
Fixed
Rate Loans
are those loans that start at a specific interest rate and remain
at that rate no matter what happens in the financial markets. If your
rate in 6% the day you get your loan, it will be 6% until you pay
the loan off. Typically, fixed rate loans are written for a period
on 30 years (360 monthly payments), or 15 years (180 monthly payments).
Terms of 10 and 20 years are also available from some investors. In
a fixed rate loan, lenders charge a premium to hedge against inflation.
The borrower pays a premium to lock their rates for 30 years. It is
interesting to note that over the past few years, the median age of
a refinanced loan was just over 3.1 years. Nonetheless, long term
fixed rate products remain the dominant product, accounting for almost
80% of all loan originations in 2003.
With an ARM (see below) rates change periodically, tracking the overall economy and this enables lenders to charge lower initial rates. Most people change their loans, either by selling their home or refinancing it, and have thereby paid more for their mortgage than necessary.
Adjustable
Rate Mortgage (ARM)
Loans are more complex, as they have two components that determine
the interest rate, the index and the margin. The index is the rate
of a short term maturity, such as the Treasury bond or 6 month certificates
of deposit. The margin is a static value, usually between 2 and 3%,
which is added to the index to produce the fully indexed rate, which
is the one you pay. The amount that the interest rate can change is
limited to protect the consumer. It can usually only increase 2% per
year and 6 % over the entire life of the loan. Start rates for ARM’s
are typically significantly lower than for Fixed Rate loans. It is
not guaranteed that the rate will go up, it can stay the same and
in some cases decrease depending on financial market changes.
It
is important to discuss and fully understand the following factors
when considering an
Adjustable Rate Mortgage loan. Be sure to address each with your loan
officer before deciding to apply for one. These factors are:
Adjustment
Period A predetermined period of time. At the end of this
interval the interest rate is adjusted, based on the index. Typically,
this is an annual event.
Index The Standard used to track the change in the economy that will
determine the direction and degree of rate change. Some indexes are
less volatile than others.
Margin The percentage that will be added to the index to obtain the
rate that your loan interest will adjust too.
Annual
Cap The maximum amount the interest rate can increase per
year.
Lifetime Cap The maximum amount the interest rate can increase over
the life of the loan.
Hybrid Loans Hybrid ARM’s provide homeowners with a unique advantage
because they adjust like an ARM but have an initial fixed rate from
1, 3, 5 or 7 years. Often they are advertised an 5/1 or 7/1 ARM’s.
This can be “decoded” as meaning fixed for 5 or 7 years
and then adjusting once every year. Its popularity is increasing,
as borrowers become more knowledgeable of the mortgage market. The
start rate increase proportionally with the length of the initial
fixed period.
Interest
Only Loans
As the name implies, these are loans that are designed to have only
the interest generated by the loan paid on a monthly basis. A “fully
Amortized” loan, which is the traditional mortgage type, requires
both the interest and principle to be paid each month. By only collecting
the interest due each month, the monthly payments are reduced. This
loan appeals to those who are interested in maximizing their available
funds each month. It is also an excellent way to qualify for a higher
loan amount as the lower payments will result in a lower overall debt-to-income
ratio, often allowing a higher loan amount
Optional Payment Flexibility is the key here!. Each month the lender informs the borrower of three optional payments. First, there is the normal principle and interest payment, which if paid each month would result in a gradual decrease in the loan balance. Then there is the interest only payment which pays the interest due for the month and leaves the loan balance constant. Finally there is the deferred interest (negative amortization) payment. The deferred interest payment is based on an artificially low interest rate. The payment is not enough to pay the full interest earned for the month. The unpaid interest is added to the loan balance. Each time this option is selected, the principle amount of the loan increases.
Balloon
Payment
After making payments for an agreed upon period of time, the entire
loan balance becomes due and payable. There is the possibility of
refinancing the loan at the time the balloon payment is due, but the
lender is under no obligation to refinance the loan. It is extremely
important that the borrower understands all of the term of this and
any other loan type.
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