PROGRAMS, RATES, & FEES
How are interest rates determined?
Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy. Over time, inflation has the largest influence on the level of interest rates. A modest rate of inflation will almost always lead to low interest rates, while concerns about rising inflation normally cause interest rates to increase. Our nation's central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.
What is an adjustable rate mortgage?
Note: Community National Bank has decided not to offer adjustable rate mortgages however is offering this valuable information on ARM's.
An adjustable rate mortgage, or an "ARM" as they are commonly called, is a loan type that offers a lower initial interest rate than most fixed rate loans. The trade off is that the interest rate can change periodically, usually in relation to an index, and the monthly payment will go up or down accordingly.
Against the advantage of the lower payment at the beginning of the loan, you should weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. It's a trade-off. You get a lower rate with an ARM in exchange for assuming more risk.
For many people in a variety of situations, an ARM is the right mortgage choice, particularly if your income is likely to increase in the future or if you only plan on being in the home for three to five years. Here's some detailed information explaining how ARM's work.
With most ARMs, the interest rate and monthly payment are fixed for an initial time period such as one year, three years, five years, or seven years. After the initial fixed period, the interest rate can change every year. For example, one of our most popular adjustable rate mortgages is a five-year ARM. The interest rate will not change for the first five years (the initial adjustment period) but can change every year after the first five years.
Our ARM interest rate changes are tied to changes in a market index rate. Using an index to determine future rate adjustments provides you with assurance that rate adjustments will be based on actual market conditions at the time of the adjustment. The current value of most indices is published weekly in the Wall Street Journal. If the index rate moves up so does your mortgage interest rate, and you will probably have to make a higher monthly payment. On the other hand, if the index rate goes down your monthly payment may decrease.
To determine the interest rate on an ARM, we'll add a pre-disclosed amount to the index called the "margin." If you're still shopping, comparing one lender's margin to another's can be more important than comparing the initial interest rate, since it will be used to calculate the interest rate you will pay in the future.
An interest-rate cap places a limit on the amount your interest rate can increase or decrease. There are two types of caps:
1. Periodic or adjustment caps, which limit the interest rate increase or decrease from one adjustment period to the next.
2. Overall or lifetime caps, which limit the interest rate increase over the life of the loan.
As you can imagine, interest rate caps are very important since no one knows what will happen in the future. All of the ARMs we offer have both adjustment and lifetime caps.
Should I pay points in exchange for a lower interest rate?
Points are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them, up front, at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing, however, you will have lower monthly payments over the term of your loan.
To determine whether it makes sense for you to pay points, you should compare the cost of the points to the monthly payments savings created by the lower interest rate. Divide the total cost of the points by the savings in each monthly payment. This calculation provides the number of payments you'll make before you actually begin to save money by paying points. If the number of months it will take to recoup the points is longer than you plan on having this mortgage, you should consider the loan program option that doesn't require points to be paid. Please use our mortgage points calculator to determine which option is best for you.
Is comparing APRs the best way to decide which lender has the lowest rates and fees?
The Federal and Massachusetts Truth in Lending laws require that all lenders disclose the APR when they advertise a rate in order to help consumers to compare lenders and the costs of a loan. The APR is designed to present as a percentage rate the actual cost of financing over the entire term of the loan. 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. Lenders are required by the law to include or exclude the same fees, so using the APR is one way to compare different lenders and loan products. However, since most people do not keep the mortgage for the entire loan term, it could be confusing to spread the effect of some of the up front costs over the entire loan term.
Fees for 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, 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.
What are the advantages of using an online lender?
Obtaining information about mortgages online allows you to quickly research lenders, use calculators to estimate costs and payments, and access rates and terms for a variety of mortgage options. Once you’ve done your research, you can apply at your convenience using our online mortgage application. In some instances, an online credit decision can be provided immediately! If you need personalized support during the application process or once you’ve applied, you can call or email a mortgage representative and get a quick response to your questions.
How do I know if it's best to lock in my interest rate or to let it float?
Mortgage interest rate movements are as hard to predict as the stock market and no one can really know for certain whether they'll go up or down. If you anticipate that rates are on an upward trend then you'll want to consider locking the rate as soon as you are able. Before you decide to lock, make sure that your loan can close within the lock-in period. If you're purchasing a home, review your contract for the estimated closing date to make sure you can close within the rate lock period. If you think rates might drop while your loan is being processed, you may choose not to lock your rate. Some of our products offer a “rate reset” option. In addition, you may want to float your rate.
What are the benefits of choosing a 15-year loan rather than a 30-year loan?
A 15-year fixed rate mortgage offers two big advantages for most borrowers.
1. You own your home in half the time it would take with a traditional 30-year mortgage.
2. You save more than half the amount of interest of a 30-year mortgage. Lenders usually offer this mortgage at a slightly lower interest rate than with 30-year loans - typically up to .5% lower. It is this lower interest rate added to the shorter loan life that creates real savings for 15-year fixed rate borrowers.
There are disadvantages associated with a 15-year rate mortgage.
1. The monthly payments for this type of loan are roughly 10 percent to 15 percent higher per month than the payment for a 30-year loan.
2. Because you’ll pay less total interest on the 15-year fixed rate mortgage, you won’t have the maximum mortgage interest tax deduction possible.
Please use our 15-year to 30-year comparison calculator to view the benefits specific to your transaction. Please feel free to contact a Mortgage Representative to discuss which loan term is best for you.
Is there a fee charged or any other obligation if I submit my application?
At this time we do not charge an application fee. We may charge an appraisal fee when applicable.
When can I lock in my interest rate?
You will have the option of locking your interest rate once we receive and review your application. Our Mortgage Representative will explain the rate lock options and fees for your specific loan product and you will decide if and when to lock the interest rate.
Are there any prepayment penalties charged for these loan products?
A prepayment penalty may apply. Contact a Mortgage Representative for more details.
Tell me more about closing fees and how they are determined.
A home loan often involves many fees, such as the appraisal fee, title charges, closing fees, and state or local taxes. These fees vary from state to state and also from lender to lender. To assist you in evaluating our fees, we've grouped them as follows:
Third Party Fees:
Fees that we consider third party fees include the appraisal fee, the credit report fee, the settlement or closing fee, the survey fee, tax service fees, title insurance fees, flood certification fees, and courier/mailing fees. Third party fees are fees that we'll collect and pass on to the person who actually performed the service. For example, an appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee, and a title company or an attorney is paid the title insurance fees. Typically, you'll see some minor variances in third party fees from lender to lender since a lender may have negotiated a special charge from a provider they use often or chooses a provider that offers nationwide coverage at a flat rate.
Taxes and other unavoidables
Fees that we consider to be taxes and other unavoidables include: State/Local Taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose.
Fees such as points, are charged to provide you with a lower rate. Fees such as document preparation fees and loan underwriting fees are administrative costs retained by the lender.
This is the category of fees that you should compare very closely from lender to lender before making a decision.
You may be asked to prepay some items at closing that will actually be due in the future. These fees are sometimes referred to as prepaid items. One of the more common required advances is called "per diem interest" or "interest due at closing." All lenders will charge you interest beginning on the day the loan funds are disbursed, it is simply a matter of when it will be collected. All of our mortgages have payment due dates of the 1st of the month. If your loan is closed on any day other than the first of the month, you'll pay interest from the date of closing through the end of the month. For example, if the loan is closed on June 15, we'll collect interest from June 15 through June 30 at closing. This also means that you won't make your first mortgage payment until August 1. This type of charge should not vary from lender to lender, and does not need to be considered when comparing lenders. If an escrow or impound account will be established, you will make an initial deposit into the escrow account at closing so that sufficient funds are available to pay the bills when they become due. If your loan requires mortgage insurance, up to two months of the mortgage insurance will be collected at closing. Whether or not you must purchase mortgage insurance depends on the size of the down payment you make. If your loan is for the purchase of a home, you'll also need to pay for your first year's homeowner's insurance premium prior to closing. We consider this to be a required advance.
What is title insurance and why do I need it?
If you've ever purchased a home before, you may already be familiar with the benefits and terms of title insurance. But if this is your first home loan or you are refinancing, you may be wondering why you need another insurance policy.
The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and your mortgage lender, want to make sure the property is indeed yours: That no individual or government entity has any right, lien, claim, or encumbrance on your property. The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected. Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders, and others who have an interest in real estate transfer.
Title companies typically issue two types of title policies:
Both types of policies are issued at the time of closing for a one-time premium if the loan is a purchase. If you are refinancing your home, you probably already have an owner's policy that was issued when you purchased the property, so we'll only require that a lender's policy be issued.
Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in the company's own title plant.
After a thorough examination of the records, any title problems are usually found and can be cleared up prior to your purchase of the property. Once a title policy is issued, if any claim covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights. They are also responsible to cover losses arising from a valid claim. This protection remains in effect as long as you or your heirs own the property.
The fact that title companies try to eliminate risks before they develop makes title insurance significantly different from other types of insurance. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen future event, say a fire, accident or theft. On the other hand, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past.
This risk elimination has benefits to both the homebuyer and the title company. It minimizes the chances that adverse claims might be raised, thereby reducing the number of claims that have to be defended or satisfied. This keeps costs down for the title company and the premiums low for the homebuyer.
In the state of Massachusetts this service is preformed by the attorney that represents the Bank.
Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed.
What is mortgage insurance and when is it required?
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. Low down payment mortgages are becoming more and more popular, and by purchasing mortgage insurance, lenders are comfortable with down payments as low as 3 - 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 - as determined by current bank policy. 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 Mortgage Representative.
What is the maximum percentage of my home's value that I can borrow?
The maximum percentage of your home's value depends on the purpose of your loan, how you use the property, and the loan type you choose, so the best way to determine what loan amount we can offer is to complete our online application!
What is a Home Equity Loan?
A Home Equity Loan is a fixed rate mortgage in which your home serves as collateral. With a home equity loan you will be approved for a specific amount, that will be disbursed to you in its entirety. You will make equal monthly payments that will be amortized over 10 or 15 years.
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