Last updated 3 years ago
Are you preparing to buy your first home? Before applying for a home loan, carefully review the answers to these frequently asked mortgage questions.
What are the types of mortgages?
While there are various types of home loans, there are two classes of mortgage types: fixed rate and adjustable rate mortgages. If you need more stability and predictability from your mortgage payments, then a fixed-rate mortgage is right for you. Fixed interest rates allow you to budget and plan for your financial future more effectively. Conversely, if your income allows for more flexibility, then you could be eligible for an initial lower interest rate with an ARM, or adjustable rate mortgage.
Which factors influence a home loan approval?
As you’re applying for a home loan, your prospective lenders consider several financial factors. First, banks and lenders analyze your household income. If you are stably employed and have a consistent income, then you are more likely to be approved for a mortgage. Additionally, mortgage lenders will request your employment history to find out how steadily you have been working over the past few years. Your ability to make a down payment is also factored into a lender’s home loan approval decision as well as your interest rate.
How does my credit score affect my mortgage rate?
One of the most important influences of your mortgage rate is your credit score. Your credit score and information detailed on your credit report allows lenders to predict how likely you’re able to pay back your home loan. The higher your credit score, the lower credit risk you pose to a bank. A higher credit score is also associated with lower interest rates, whether for a fixed rate mortgage or an ARM.
What’s the difference between simple and compound interest rates?
After receiving your home loan approval, you will be offered a mortgage interest rate. These rates are either compounded or simple. A compound interest rate is calculated each year based on your original home loan amount and additional interest. Simple interest is only calculated based on your principal mortgage amount.
Now that you are an expert on home loans, apply for your mortgage rate today by scheduling an appointment at 1st Family Mortgage Company. Call us with your questions and financial information at (256) 425-0105.
Last updated 3 years ago
If you’re purchasing a new home, then you have a variety of mortgage rate options. Learn more about combined/hybrid ARMs with the following financial information.
What is a Combined or Hybrid ARM?
A combined or hybrid ARM is a specific type of adjustable rate mortgage. The interest rate associated with a combined adjustable rate mortgage depends on the overall housing market’s interest rates. Unlike fixed rate mortgages, adjustable rate mortgages have fluctuating interest amounts. Most ARMs begin with an initial fixed-rate period followed by intervals of rate changes. Hybrid adjustable interest rates begin with an initial adjustment after about three to ten years followed by annual mortgage rate adjustments.
One popular form of hybrid adjustable rate mortgage involves interest-only payments. Originally, these types of home mortgages were designed for middle class home owners. After receiving your home loan, an interest-only ARM requires you to pay the interest on your mortgage for typically ten years. If you have a varying monthly income, then an interest-only mortgage allows you flexible monthly payments before your interest rate changes.
Since hybrid ARMs will eventually adjust to the market’s current rates, there are limits to protect you from dramatic payment increases. There are a variety of interest rate caps that limit the amounts of your monthly payments. A periodic rate cap inhibits the mortgage change at one time, usually annually. It also limits your adjustable rate mortgage from reaching above a specific amount of percentage points within a year. A lifetime rate rap restricts your home loan’s interest rate from increasing above a certain amount over your entire repayment period. the payment cap places a limit on the amount of your monthly payment amount rather than restricting the interest rate percentage.
Graduated Payment ARMs
A graduated payment hybrid ARM provides you with lower initial payments. This type of ARM is more consistent as your interest rate gradually increases at designated intervals. If you are borrowing a large mortgage amount, then the initial lower interest rates associated with graduated payment ARMs increases your chances of being approved.
Are you preparing to apply for a Huntsville home loan? Entrust your mortgage needs with the financial specialists at 1st Family Mortgage Company. Call us today at (256) 425-0105.