Mortgage Loan Questions
Q. What is an appraisal?
A. Appraisals determine the value of the home for the purpose of your loan or refinance.
Q. What is a credit score?
A. Your credit score is a number based on compiled information from credit bureaus and your creditors about your balance, your amount owed, and your payment timing. The higher the credit score, the less of a risk the loan agent sees in you. Credit Scores are just one of numerous factors when it comes to mortgage loans.
Q. What happens at the loan closing?
A. All of the documents necessary to finalize your mortgage are signed. If it is a purchase, the seller will sign the documents transferring ownership of the home to you along with other necessary forms. The mortgage and deed are recorded at the appropriate county registry.
Q. If I am selling my current home to purchase a new home, what documentation is required before I close?
A. You will need a copy of the settlement or closing statement from your own home closing. This confirms that your current mortgage is paid off and that you can close on the new home. If your current home and new home close on the same day you can bring the settlement statement with you to the new home closing.
Q. Will I need to have an attorney represent me at closing?
A. That is entirely your decision. The attorney for the bank will prepare all the necessary documents so it is not required, but you may decide to consult an attorney.
Q. What are "closing costs?"
A. Your purchase price and mortgage interest are the main costs of buying a home. However, to close the sale legally (and to protect interests of everyone involved), the services of many professionals from a variety of fields are necessary. Closing costs cover these services, and they usually total between 3% and 5% of the typical Massachusetts mortgage. Not all Massachusetts mortgages have the same types of closing costs. Your closing costs may include:
- Appraisal fees
- Closing/attorney fees
- Recording fees
- Survey fees
- Investor fees
- Credit reports
- Title or tax services
- Homeowner's insurance
- Private mortgage insurance
- Title insurance
- Escrow fees (fees associated with setting up an account to pay tax and insurance monthly with a mortgage. Escrow accounts are required for any purchase with less than 20% down payment.)
- Loan origination charges Points (charges for "buying down" your interest rate)
To help you firm up your budget, your home mortgage professional will give you a good faith estimate of your closing costs shortly after you apply formally for your mortgage.
Q. What are "points?"
A. One point = one percent of your loan amount. You may wish to pay points at the closing in order to reduce your loan interest rate and lower your expenses over the life of your mortgage.
Q. What is "pre-paid interest?"
A. Say you close your loan on the 10th of the month. Interest will then accrue between that day and the last day of that month. Rather than assessing you with a larger first monthly payment, your lender will add that accrued interest to your closing costs.
Q. What will my monthly mortgage payment include?
A. The answer depends on the terms of your mortgage. One portion of every monthly payment pays down your principal. Another portion (usually larger, especially in the earlier years of your term) goes toward your interest. Every month, you may pay additional money to reduce your principal balance. Additionally, portions of your mortgage payments may go toward any or all of these costs:
Your mortgage holder may disperse these funds from the escrow account set up with your mortgage.
- Private mortgage insurance (PMI)
- Homeowner's insurance
- Property taxes
- Flood insurance if applicable
Q. What is PMI?
A. If you are putting less than 20% down on your home, you will be required to purchase private mortgage insurance, or PMI. PMI protects your mortgage holder in the event you default on your mortgage. Your PMI premiums are part of your monthly mortgage payment and required until your principal balance is paid down to a percentage of the appraised value of your home. This percentage is dependent on the specific mortgage program that you select. Hint: If you are required to purchase PMI, it pays to add a little extra to your monthly payments in order to reduce principal balance and discontinue PMI sooner.
Q. What is a fixed-rate mortgage?
A. A fixed rate mortgage is a loan where the rate of interest you pay to the loan agent does not change over the life of the loan. In other words, the monthly mortgage payment you make will remain the same for the length of the loan.
Q. What's the deal with 15-year loans?
A. A 15-year fixed rate mortgage lets you own the home in less time but with higher monthly payments. This type of loan also means you pay less interest to the loan agent than with a 30-year fixed rate mortgage. 15-year fixed rate mortgages are a good option if you can afford the higher payments.
Q. What is an adjustable rate mortgage or ARM?
A. An adjustable rate mortgage or ARM is a loan with a lower interest rate to start but it changes periodically. The loan is fixed for a period of time and then can change every year. You can place interest-rate caps to limit how much the rate can increase or decrease. The types of caps included Periodic/Adjustment Cap and Overall/Lifetime Cap. Periodic/Adjustment Caps limit the interest rate change from each adjustment period. The Overall/Lifetime Cap limits the interest rate change over the length of the loan.
Q. What are interest-only loans?
A. An interest only mortgage is a loan where the monthly payment does not include any payment of principal, therefore, the loan balance does not decline. For example, if you borrowed $100,000 and paid interest only, after one year, you would still owe $100,000.00.
Q. Should I choose a fixed-rate or adjustable rate mortgage?
A. The answer mainly depends on how long you expect to stay in your home. Interest rates on fixed-rate residential home mortgages never change over the life of the loan, no matter how long the term. Fixed rates are preferable if you plan to stay in your home for more than five or seven years. If Massachusetts mortgage interest rates go up, you're protected; if they drop, you can refinance. Adjustable rate mortgages (ARMs) are pegged to an index such as the variable LIBOR (London Interbank Office Rate) and, therefore, may change upward or downward. You may be able to save on interest costs with an adjustable rate mortgage if you only expect to stay in your home for a few years. For example: You may find a "5/1" (or 3/1, or other term) ARM with a competitive interest rate. That rate would stay unchanged for the first five years of your loan (the "5" in "5/1"), then reset every year afterward (the "1" in "5/1"). However, you can't predict whether your rate will reset up or down-or by how much. If you're confident that you'll move before your rate resets, an ARM may save you money. By the way, you can also refinance an ARM to a fixed-rate mortgage if rates go down.
Q. How much home can I afford?
A. That depends on a few factors. Our calculator can help you make an estimate.
Q. What is an escrow account?
A. An escrow account requires you to make monthly payments for real estate taxes and other insurance for your monthly mortgage payment. The bills are sent to the lender who makes the payments from your escrow account.
Q. What is the maximum percentage of my home's value that I can borrow?
A. We offer many different financing options and mortgage types so it would depend on what program you qualify for. One of our Loan Officers can help you determine that figure.
Q. How are "interest rate" and "APR" different?
A. The interest rate (sometimes called the "nominal") is simply the cost to borrow the money for your home purchase. "APR" stands for "annual percentage rate" and is sometimes called the "effective" or "EAR." APR includes interest as well as many other loan costs, points and fees, and expresses them as an annualized rate.
Q. What will my rate be?
A. In addition to current Massachusetts bank mortgage rates, several factors determine your interest rate:
The less of a risk you present, the lower interest rate you can expect.
- Your credit history
- Your ability to repay
- The value of your collateral
- The loan amount