Here are the most commonly asked questions regarding mortgages:

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. There are other factors that determine rates, but these are the most common.

What is an adjustable rate mortgage?

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.

Adjustment Period

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.

Index

Our ARM interest rate changes are tied to changes in an 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.

Margin

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.

Interest-Rate Caps

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 can happen in the future. All of the ARMs we offer have both adjustment and lifetime caps. Please see each product description for full details.

Negative Amortization

"Negative Amortization" occurs when your monthly payment changes to an amount less than the amount required to pay interest due. If a loan has negative amortization, you might end up owing more than you originally borrowed. None of the ARMs we offer allow for negative amortization.

Prepayment Penalties

Some lenders may require you to pay special fees or penalties if you pay off the ARM early. We never charge a penalty for prepayment.

Contact a PROFESSIONAL Loan Officer

Selecting a mortgage may be the most important financial decision you will make and you are entitled to all the information you need to make the right decision. Don't hesitate to contact me if you have questions about the features of our adjustable rate mortgages.

Should I pay discount points for a lower interest rate?

Discount points are considered a form of interest. Each discount point is equal to one percent of the loan amount. You pay discount point(s) in exchange for a lower interest rate over the life of your loan. This means more money may 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 discount points, you should compare the cost of the discount points to the monthly payments savings created by the lower interest rate. Divide the total cost of the discount 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 discount points. If the number of months it will take to recoup the discount points is longer than you plan on having this mortgage, you should consider the loan program option that doesn't require discount points to be paid.

I will be happy to discuss this option with you to determine if this may be a good financial decision for you.

Is comparing APRs the best way to decide which lender has the lowest rates and fees?

The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that 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. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up front costs over the entire loan term.

Also, unfortunately, the APR doesn't include all the closing fees and lenders are allowed to interpret which fees they include. Fees for things like appraisals, title work, and other fee's are not included even though you may 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!

Sould I lock or float my interest rate?:

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 have a hunch 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. It won't do any good to lock your rate if you can't close during the rate lock period and there will be an additional fee you will have to pay, or possibly a higher interest rate. If you're purchasing a home, review your contract for the estimated closing date to help you choose the right rate lock period. If you are refinancing, in most cases, your loan could close within 30 days. However, if you have any secondary financing on the home that won't be paid off, allow some extra time since there may be other issues that arise that may delay the closing date. It is also very important to know that in Wisconsin it is required that 3 business days pass after the closing date so the loan will NOT be finalized until the 4th business day after closing! This means the rate lock expiration date must be AFTER that date!

If you think rates might drop while your loan is being processed, take a risk and let your rate "float" instead of locking. You MUST have your rate "locked" a minimum of 10 days prior to closing.

How much money will I save by choosing a 15-year loan rather than a 30-year loan?

A 15-year fixed rate mortgage gives you the ability to own your home free and clear in 15 years. And, while the monthly payments are somewhat higher than a 30-year loan, the interest rate on the 15-year mortgage is usually a little lower, and more important - you'll pay less in total interest compared the traditional 30-year mortgage.

However, if you can't afford the higher monthly payment of a 15-year mortgage, or may not qualify for a 15 year based on your debt ratio's, don't feel alone. Many borrowers choose the 30-year mortgage.

Who Should Consider a 15-Year Mortgage?

The 15-year fixed rate mortgage is most popular among younger homebuyers with sufficient income to meet the higher monthly payments to pay off the house before their children start college. They own more of their home faster with this kind of mortgage, and can then begin to consider the cost of higher education for their children without having a mortgage payment to make as well. Other homebuyers, who are more established in their careers, have higher incomes and whose desire is to own their homes before they retire, may also prefer this mortgage.

Advantages and Disadvantages of a 15-Year Mortgage

The 15-year fixed rate mortgage offers two big advantages for most borrowers:

You own your home in half the time it would take with a traditional 30-year mortgage.

You save more than half the amount of interest of a 30-year mortgage. Lenders usually offer this mortgage at a lower interest rate than with 30-year loans. It is this lower interest rate added to the shorter loan life that creates real savings for 15-year fixed rate borrowers.

Possible disadvantages associated with a 15-year fixed rate:

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.
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.

Compare Them Yourself

Use the mortgage payment calculator link on my front page to help decide which loan term is best for you.

Are there any prepayment penalties on these loan programs?

None of the loan programs we offer have penalties for prepayment!

What is your Rate Lock Policy?

General Statement

The interest rate market is subject to movements without advance notice. Locking in a rate protects you from the time that your lock is confirmed up to the day that your rate lock period expires.

Lock-In Agreement

A lock is an agreement by the borrower and the lender and specifies the number of days for which a loan’s interest rate and discount points are guaranteed. Should interest rates rise during that period, we are obligated to honor the committed rate. Should interest rates fall during that period, the borrower must honor the lock.

When Can I Lock?

In some cases, your online application may provide all the information needed and you will have the option to lock your loan then, or at any time during the loan approval process up until at least 10 days before the closing date.

Fees

We do not charge a fee for locking in your interest rate, however there may be a fee to extend the rate lock if the closing date is after the rate lock expiration date.

Lock Period

We currently offer 30, 45 and 60 day lock-in periods. This means your loan must close and disburse within this number of days from the day your lock is confirmed by us.

Lock Changes

Once we accept your lock, your loan is committed into a secondary market transaction. Therefore, we are not able to renegotiate lock commitments.

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 and closing fees, underwriting & processing, etc. These fees can vary from lender to lender. Any lender or broker should be able to give you a "good faith estimate" of their fees, but it is becoming more difficult to tell which lenders have done their homework and are providing a complete and accurate estimate. Even though there a some variables, I've completed the research necessary to make sure that my quotes are as accurate as possible.

There are different categories of fees associated with obtaining a mortgage and I've grouped them as follows:

Third Party Fees

Fees that we consider third party fees include but not limited to: The appraisal fee, title insurance & title company closing fee, tax service & transcripts, flood certification, and credit report, and recording 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, etc.

Typically, you'll see some minor variances in third party fees from lender to lender since a lender may have negotiated a special rate from a provider they use often. If a lender chooses to NOT pass these fees on to you, more often than not you will have a higher interest rate on your loan to off-set these normal expenses.

Lender Fees:

Fees such as discount points (optional), document preparation and loan underwriting & processing fees are retained by the lender and are used to provide you with the lowest rates possible.

Required Advances / Pre-Paid Items

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 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, at closing. 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. 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.

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 such as property taxes, etc.

If your loan is a purchase, you'll also need to pay for your first year's homeowner's insurance premium prior to closing. This is also a required advance.

If some lenders don't quote you fees that include taxes and pre-paid fees, don't assume that you won't have to pay it. It probably means that the lender who doesn't tell you about the fee hasn't done the research necessary to provide accurate closing costs.

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 especially your mortgage lender, want to make sure the property is indeed yours, and that no individual, business or government entity etc., 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:

1) Owner's Policy. This policy covers you, the homebuyer.

2) Lender's Policy. This policy covers the lending institution over the life of the loan.

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.

Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property should be covered by the title company.

What is mortgage insurance and when is it required?

Mortgage insurance makes it possible for you to buy a home with less than the typical requirement of 20% down payment by protecting the lender against the additional risk associated with low down payment lending. Low down payment mortgages are available with many loan programs, and by purchasing mortgage insurance, lenders will accept little or no down payments, depending on the loan program available.
The mortgage insurance premium is based on loan to value ratio, type of loan, and amount of coverage required by the lender and usually the premium is included in your monthly payment.
It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount, usually below 80% of the property value. 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 me.

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 long you've owned and how you use the property, and the loan type you choose, so the best way to determine what loan amount percentage is available to use is to complete the on-line application and contact me.