Category Archives: Loans

What Is A VA Loan?

The VA Loan became known in 1944 through the original Servicemen’s Readjustment Act also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans. The GI Bill contributed more than any other program in history to the welfare of veterans and their families, and to the growth of the nation’s economy.With more than 25.5 million veterans and service personnel eligible for VA financing, this loan is attractive and has many advantages. Eligibility for the VA loan is defined as Veterans who served on active duty and have a discharge other than dishonorable after a minimum of 90 days of service during wartime or a minimum of 181 continuous days during peacetime. There is a two-year requirement if the veteran enlisted and began service after September 7, 1980 or was an officer and began service after October 16, 1981. There is a six-year requirement for National guards and reservists with certain criteria and there are specific rules concerning the eligibility of surviving spouses.

VA will guarantee a maximum of 25 percent of a home loan amount up to $104,250, which limits the maximum loan amount to $417,000. Generally, the reasonable value of the property or the purchase price, whichever is less, plus the funding fee may be borrowed. All veterans must qualify, for they are not automatically eligible for the program.

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.

Why Do Mortgage Interest Rates Change? Part II

If the demand for credit reduces, then so do interest rates. This is because there are more people who are ready to lend, sellers, than people who want to borrow, buyers. This means that borrowers, buyers, can command a lower price, i.e. lower interest rates.

When the economy is expanding there is a higher demand for credit so interest rates go up. When the economy is slowing the demand for credit decreases and thus interest rates go down.

 This leads to a fundamental concept:

Bad news (i.e. a slowing economy) is good news for borrowers as it means lower interest rates.
Good news (i.e. a growing economy) is bad news for borrowers as it means higher interest rates.


Another major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy grows too strongly the Federal Reserve increases interest rates to slow the economy down and reduce inflation.

Inflation results from prices of goods and services increasing. When the economy is strong there is more demand for goods and services, so the sellers and producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments and higher mortgage rates.

Also lenders naturally want to see a positive return on their money as their reward for lending it. This leads to the concept of the “real” rate of return. This is typically 3% per year. If inflation is 4 % per year, lenders will want to earn 7% per year on their money.

Likewise, if prices are rising rapidly, people are inclined to borrow “today’s” money so as to repay it with “tomorrow’s” money, which will be worth less.

Mortgage rates tend to move in the same direction as interest rates. However, actual mortgage rates are also based on supply and demand for mortgages.

 There is usually an almost fixed spread between A credit mortgage rates and treasury rates. This is not always the case. For example, bank failures in the Far East in the late 90s caused mortgage rates to move up while treasury rates moved down as fearful investors fled to the safety of the treasury bonds and notes.

Bonds Rates

There is an inverse relationship between bond prices and bond rates. This can be confusing. When interest rates move up, bond prices move down and vice versa. This is because bonds usually have a fixed price at maturity––typically $1000. The bond will start off being sold for the face value, $1000 and at a set interest rate. If interest rates go down, then this bond will go up in price so that these bonds will remain fairly priced compared with current bond offerings. Obviously the longer before the bond matures for the face value, $1000, the greater the price premium will be to enjoy that higher than current yield for the rest of the bond’s term.

The inverse also applies. If interest rates move up, the bond seller will have to reduce his price to offer a similar yield to current bond offerings.

Questions? Contact us at info@mortgagelinkhome.com or visit our web site at www.mortgagelinkhome.com

Why Do Mortgage Interest Rates Change? Part I

To understand why mortgage rates change we need to know why do interest rates change and there is not one interest rate, but many interest rates!

Prime rate: The rate offered to a bank’s best customers.
Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).
Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.
Treasury Bonds: Long debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.
Federal Funds Rate: Rates banks charge each other for overnight loans.
Federal Discount Rate: Rate New York Fed charges to member banks.
Libor: : London Interbank Offered Rates. Average London Eurodollar rates.
6-month CD rate: The average rate that you get when you invest in a 6-month CD.
11th District Cost of Funds: Rate determined by averaging a composite of other rates.
Fannie Mae Backed Security rates: Fannie Mae, a quasi-government agency, pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae backed securities. The rates on these securities influence mortgage rates very strongly.
Ginnie Mae-Backed Security rates: Ginnie Mae, a quasi-government agency, pools large quantities of mortgages, securitizes them and sells them as Ginnie Mae-backed securities. The rates on these securities affect mortgage rates on FHA and VA loans.

Interest-rates move because of the laws of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more people who want money, buyers, so people who are willing to lend it, sellers, can command a better price, i.e. higher interest rates. If you have questions about your mortgage please contact me or visit my web site at www.mortgagelinkhome.com.

5 Things You Must Know Before Obtaining a Mortgage: #5

Industry research has revealed that there are 5 common mistakes that most homebuyers make in mortgage shopping that can have a significant impact on the outcome of this critical negotiation. If handled correctly, these issues could result in a mortgage that will cost you less over a shorter period of time.

5. You should seriously consider dealing with a Mortgage Expert

Photo by Deb Duncan

Consider dealing only with a professional who specializes in mortgages and understands your needs and desires. Enlisting The Mortgage Link’s services will make a significant difference in the cost and effectiveness of the mortgage you obtain.

Go to my web site at Mortgage Link for more information or send me an e-mail. By working with me, you can reach your goals faster.

Contact me today and find out how much home you can afford or how much money you can take out of your home to renovate, send your kid to college, or invest for the future.

Ellen

This is the final segment of a 5-part series on how to keep the stress low and the savings high when you get a mortgage. By paying close attention to resolving these five common issues, you will improve your chances of getting the property you want, and get the kind of mortgage you can handle in the long term.

Check back for my next series, “10 Ideas Before Selling Your House.”

5 Things You Must Know Before Obtaining a Mortgage: #4

Industry research has revealed that there are 5 common mistakes that most homebuyers make in mortgage shopping that can have a significant impact on the outcome of this critical negotiation. If handled correctly, these issues could result in a mortgage that will cost you less over a shorter period of time.

4. Make sure you understand which prepayment privileges and payment frequency options are available to you Photo by Deb Duncan

More frequent payments (for example weekly or biweekly) can literally shave years off your mortgage. Simply by structuring your payments so they are paid more frequently will significantly reduce the amount of interest that you will be charged over the term. 

For the same reason, authorized pre-payment of a certain percentage of your mortgage, or an increase in the amount you pay monthly, will have a major impact on the number of years you will have to pay and could shorten your payment term considerably. 

These two payment options can cut years off your mortgage, and save you thousands of dollars in interest. However, not every mortgage has these prepayment privileges built in, so make sure you ask the proper questions.

Go to my web site at Mortgage Link for more information or send me an e-mail. By working with me, you can reach your goals faster.

Ellen

This is part 4 of a 5-part series on how to keep the stress low and the savings high when you get a mortgage. By paying close attention to resolving these five common issues, you will improve your chances of getting the property you want, and get the kind of mortgage you can handle in the long term.

5 Things You Must Know Before Obtaining a Mortgage: #3

Industry research has revealed that there are 5 common mistakes that most homebuyers make in mortgage shopping that can have a significant impact on the outcome of this critical negotiation. If handled correctly, these issues could result in a mortgage that will cost you less over a shorter period of time.

3. You should be thinking about your long term goals, and expected situation, to determine the type of mortgage that will best suit your needs 

There are a number of questions you should be asking yourself before you commit to a certain type of mortgage. How long do you think you will own this home? What direction are interest rates going in, and how quickly? Is your income expected to change (up or down) in the near future, impacting how much money you can afford to pay toward your mortgage? The answers to these and other questions will help you determine the most appropriate mortgage to suit your needs.

Go to my web site at Mortgage Link for more information or send me an e-mail. I can help you plan your future.

Ellen

This is part 3 of a 5-part series on how to keep the stress low and the savings high when you get a mortgage. By paying close attention to resolving these five common issues, you will improve your chances of getting the property you want, and get the kind of mortgage you can handle in the long term.

Today’s Vocabulary Lesson

Application Fee: That part of the closing costs pre-paid to the lender at time of application to cover initial expenses.

Appraisal: A report made by a qualified person as to the value of a property as of a given date.

Assessed Value: The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.

Assumption of Mortgage: The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.

Need to learn a term that starts with B through U? Go to the Mortgage Glossary at Mortgage Link!

Ellen

5 Things You Must Know Before Obtaining a Mortgage: #2

Photo by Deb Duncan

Industry research has revealed that there are 5 common mistakes that most homebuyers make in mortgage shopping that can have a significant impact on the outcome of this critical negotiation. If handled correctly, these issues could result in a mortgage that will cost you less over a shorter period of time.

2. Know what monthly dollar amount you feel comfortable committing to

When you discuss the mortgage pre-approval with me, find out what level you qualify for, but also pre-assess for yourself what monthly dollar amount you feel comfortable committing to. Your situation may give you an approval amount that is higher (or lower) than the amount of money you would want to pay out each month. By working with me to determine what this monthly amount is, and what value of home this translates into at today’s rates, you won’t waste time looking at homes that are not in your price range.

Go to my web site at Mortgage Link for more information or send me an e-mail. Let’s get the ball rolling NOW.

Ellen

This is part 2 of a 5-part series on how to keep the stress low and the savings high when you get a mortgage. By paying close attention to resolving these five common issues, you will improve your chances of getting the property you want, and get the kind of mortgage you can handle in the long term.

Today’s Vocabulary Lesson

From the Mortgage Glossary at Mortgage Link:

Abstract (of title): A written summary of the title history of a particular piece of real estate.

Acceleration Clause: A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.

ARM (Adjustable Rate Mortgage): A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index.

Amortization: Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of fixed period or term, no money will be owed.

APR (Annual Percentage Rate): The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.


Don’t worry – there won’t be a pop quiz.  But I will post mortgage terms from time to time to help you learn how to speak Mortgage-ese like a pro!Ellen