A broker puts your loan together and “shops” it to get you the best possible loan. The broker must rely on third parties (the actual lenders) however. Many times this results in poor service (not always a broker’s fault) and/or changes in the original rates and terms you based your initial decision to do business on. As direct lenders, you and your JMO, Inc. loan representative will work together to lock your loan in the moment you are ready. Then as your loan proceeds through processing and underwriting, your loan will move through the JMO, Inc. system to our own document and funding department. This means in most cases, we control your complete transaction right in our own offices from initial application to final funding! This results in better service and reliability.
What are “interest only” payments?
Simply put, interest only payments are computed by taking the interest rate times your loan balance and divide by twelve (months). So 5% interest only on $200,000 is computed .05 X $200,000 = $!0,000 divided by 12 = $833.33 per month interest only. While this method is over simplified, it does reflect very closely what the actual payment would be.
What is “negative amortization”?
Negative amortization occurs when a monthly payment option exists that is insufficient to meet the monthly accrued interest on a loan. Your loan balance would actually go up by the difference between what you paid and the minimum interest due on your loan based on your note rate. This is a trade off for making the lowest possible payment.
What are payment option loans?
These are loans that offer a variety of payment options that include choices for (in order of lowest to highest payment amount), a scheduled payment based on a low initial rate that can result in “negative amortization”, a full interest only payment or the 30 year fully amortized payment that includes principal and interest. You choose which payment to pay each month. In each of the last two options, no negative amortization occurs. At the end of five years these loans will typically “recast”. This means whatever your balance is at the end of five years, payments will be recomputed based on that balance that will result in you having a zero balance on your loan at the end of the remaining 25 years.
What does fully amortized mean?
A fully amortized loan provides for a monthly payment that results in a zero balance at the conclusion of the loan term you agreed to. A 30 year fully amortized loan therefore requires a payment of principal and interest necessary to pay your loan balance in full at the end of thirty years. Both fixed rate and adjustable rate loans can be (and usually are) fully amortized.
Are No Point Loans or Zero cost (no fees) loans a good way to go?
They can be. It will depend on your future plans. Everything should be decided using good old mathematics. With a No Points/Zero Cost loan, you will pay a higher interest rate on your loan than if you paid points and fees. In short as the old saying goes, “There are no free rides”. You will pay for your loan in either case. If you choose a No Points or Zero cost loan, your total loan amount will be less because you don’t have to finance the costs. You need to calculate the payment on both the lower loan amount with the higher rate and the higher loan amount with the lower interest rate. You can deduct one payment from the other to “reveal” the difference (monthly savings) achieved via the lower rate on a loan where you paid the costs. You will have to know what the costs would have been on a typical loan with fees. Divide the costs by the monthly savings you achieve by paying costs and paying the lower rate. You have then done the math and will see how many months it will take you to “break even” on the costs. Every month thereafter represents a savings over the no cost loan. No cost or no fee loans typically require a prepayment penalty provision.
What are the advantages of an adjustable rate loan over a fixed rate loan or vice versa?
Once again, it is largely a matter of personal preferences. A more conservative, conventional approach often prefers the known quantity of the fixed rate option. A more aggressive approach may prefer the savings achieved via a vast array of possibilities on adjustable rate loans. Adjustable rate loans are usually easier to qualify for and provide greater affordability in the monthly payments. The trade off though is a level of fear of the unknown. No one can predict the future of interest rates. In essence with an adjustable rate loan, you derive the benefits of considerable savings today and easier qualifying for the uncertainty of where rates will be in the months and years to come. You can get adjustable rate loans that do provide front end fixed rate periods of 2, 3, 5, 7 and 10 years and then become adjustable rate loans. The rates will provide less savings as you move out towards the longer fixed rate periods. But initial fixed rate periods with an interest only option are rapidly gaining in popularity. This again results in even lower rates. At JMO, Inc. we will assist you in developing a mortgage loan strategy that meets with your preferences.
How does a rate lock work?
You and your lender’s representative need to determine an anticipated closing date for your loan based on your needs coupled with your lender’s time requirements to get through the loan process. You can then choose to lock the agreed upon rate for a predetermined period of time. You will need to close your loan within that time frame to get the protected rate. If you prefer, you can also start your loan process and not lock at that time. This is called a “float”. You are floating with the day to day fluctuations in the interest rate market. You are in essence choosing “to play” the market with your rate. If rates go down, you can time your lock to achieve additional savings or conversely you might also become subject to any rate increases that could occur. If you choose to lock up front, a typical loan quote includes a 30 or 45 day lock period. Locks can be in different durations. The general rule is that the shorter the time-frame of the lock, the cheaper the cost (in either rate or fees). As you extend the amount of time you want to lock for from 30 to 45 to 60 days and beyond. It gets increasingly expensive.
Why is the Annual Percentage Rate (APR) always higher than the loans interest rate (note rate)?
This is a result of a federal regulation called “Federal Regulation Z” that requires an APR to be disclosed based on guidelines established within the regulation. It is best explained by using an example. We’ll assume a loan amount of $100,000 with $3,000 in costs. Let’s say the note rate on the loan is 6%. For the purposes of compliance with Federal Regulation Z, the loan will be disclosed as a $97,000 loan and the $3,000 would be included in the APR as prepaid finance charges. So, for this one disclosure it shows you paying more interest (the $3,000 costs) on a loan amount of $97,000 which always results in the APR being higher than the actual note rate on your loan. (This example is stated in a simplified fashion to allow easier understanding of how APR works.)
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