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Selecting Loan Program What kind of loans are there? How do I compare loans? How do I know what my loan rate will be? Why are your rates different from those in the newspaper? What are the costs that are included in my loan payment? Do your loans have prepayment penalties? Do I have to have an impound account? What is the minimum down payment required? What is the maximum debt-to-income ratio? What is the minimum FICO score? Can I set up a direct debit to make my monthly payment? Can I make a bi-weekly payment? Can I make extra principal payments so I can pay off the loan more quickly? What about easy qualifier loans that do not require as much supporting documentation? What is the maximum percentage of my home's value that I can borrow? How do I calculate my Loan-to-Value ratio (LTV)? Can I subordinate my current second mortgage? How much can I borrow on a second mortgage? Can I spend the funds received on a second mortgage for any purpose? How do I determine the points I want to pay? Should I pay discount points in exchange for a lower interest rate? What's the difference between a home equity loan and a refinance? How much money will I save by choosing a 15 year loan rather than a 30 year loan? How can I save on a Fixed Rate Mortgage? How can a shorter term save me money on a Fixed-Rate Mortgage? How does an ADJUSTABLE RATE MORTAGE work? How is "Start rate" different from "Qualifying rate"? How is start rate different from APR? What is an intermediate fixed rate mortgage? Why offer a balloon loans? Why pay points? When do I select a zero point option? What kind of loans are there? 30 Years Fixed This loan has a fixed rate for the entire 30 year term of loan. The payment remains constant and the borrower pays off the loan in 30 years. This is one of the most stable, lowest risk programs available. 20 Years Fixed This loan has a fixed rate for the entire 20 year term of the loan. The payment is higher than the 30 Years Fixed, but remains constant and the borrower pays off the loan in 20 years. This is one of the most stable, lowest risk programs available. 15 Years Fixed This loan has a fixed rate for the entire 15 year term of the loan. The payment is higher than the 30 and 20 Years Fixed, but remains constant and the borrower pays off the loan in 15 years. This is one of the most stable, lowest risk programs available. 10 Years Fixed This loan has a fixed rate for the entire 10 year term of the loan. The payment is higher than the 30, 20 and 15 Years Fixed, but remains constant and the borrower pays off the loan in 10 years. This is one of the most stable, lowest risk programs available. 7/1 ARM This is a popular program among borrowers planning to keep the loan more than five but less than seven years. The interest rate is fixed for the first 84 months of the loan's 30 year term. At the end of the 84 months, the interest rate adjusts to the lower of: For the LIBOR Index: For the T-Bill Index: The 1-Year LIBOR Index plus 2.25% margin, or The initial rate plus 5% The 1-Year T-Bill Index plus 2.75% margin, or The initial rate plus 5% Thereafter, the interest rate will adjust every 12 months to the lower of: For the LIBOR Index: For the T-Bill Index: The 1-Year LIBOR Index plus 2.25% margin, or The previous rate plus 2%, or The initial rate plus 5% The 1-Year T-Bill Index plus 2.75% margin, or The previous rate plus 2%, or The initial rate plus 5% 5/1 ARM This is a popular program among borrowers planning to keep the loan more than three but less than five years. The interest rate is fixed for the first 60 months of the loan's 30 year term. At the end of the 60 months, the interest rate adjusts to the lower of: For the LIBOR Index: For the T-Bill Index: The 1-Year LIBOR Index plus 2.25% margin, or The initial rate plus 6% - Conf. The initial rate plus 5% - Jumbo The 1-Year T-Bill Index plus 2.75% margin, or The initial rate plus 6% - Conf. The initial rate plus 5% - Jumbo Thereafter, the interest rate will adjust every 12 months to the lower of: For the LIBOR Index: For the T-Bill Index: The 1-Year LIBOR Index plus 2.25% margin, or The previous rate plus 2%, or The initial rate plus 6% - Conf. The initial rate plus 5% - Jumbo The 1-Year T-Bill Index plus 2.75% margin, or The previous rate plus 2%, or The initial rate plus 6% - Conf. The initial rate plus 5% - Jumbo 3/1 ARM This is a popular program among borrowers planning to keep the loan less than three years. The interest rate is fixed for the first 36 months of the loan's 30 year term. At the end of the 36 months, the interest rate adjusts to the lower of: For the LIBOR Index: For the T-Bill Index: The 1-Year LIBOR Index plus 2.25% margin, or The initial rate plus 2% The 1-Year T-Bill Index plus 2.75% margin, or The initial rate plus 2% Thereafter, the interest rate will adjust every 12 months to the lower of: For the LIBOR Index: For the T-Bill Index: The 1-Year LIBOR Index plus 2.25% margin, or The previous rate plus 2%, or The initial rate plus 6% The 1-Year T-Bill Index plus 2.75% margin, or The previous rate plus 2%, or The initial rate plus 6% How do I compare loans? At Shearsons Mortgage, we offer a number of loan products for all sorts of borrowers. Yet, you may also wish to compare our loan programs with other lenders. So here are some questions that can help you sort it all out: What type of loan will be best for me? A good lender can point out other loan options you may not be aware of. What will my closing costs be? Ask your lender for a general summation of the fees and commissions that will be required of you at closing. Will I be charged points? Sometimes a loan is only available if you pay points, so ask your lender if the loan quoted requires points. What items must be prepaid? Your lender should let you know what items, such as property taxes and insurance, must be paid in advance. How long will I be guaranteed the quoted interest rate? This is called "locking in" a rate. Ask your lender how long your rate can be reserved and if there's a fee involved. How long will the approval take? This varies, so get an estimate, especially if you're on a deadline. Does the loan have a prepayment penalty? If you think you may refinance or pay off the loan early, you should ask if there's a fee involved for doing so. How do I know what my loan rate will be? Rates vary primarily based on the type and purpose of the loan, your credit history and income, loan amount, value of the property, and the number of points you are willing to pay. Why are your rates different from those in the newspaper? If you compare our loan rates to those in newspapers and other print publications, please bear in mind that the rates in these publications may have been reported one or more days ago (sometimes a week ago with a Sunday paper), and may no longer be available. Rates on this site are updated each business day, and often several times a day. Consumers that have loan shopped extensively have told us that we offer some of the most competitive rates around - both on and off the Web. Note that the rates are personalized according to answers you give us. Newspaper rates are not tailored to your individual needs and circumstances. What are the costs that are included in my loan payment? At the least, your loan payment will consist of the principal and interest for one month. In some states you may elect to have your insurance and taxes prorated and added onto the monthly cost. In other states, it may be required that you pay for insurance taxes as part of your loan monthly payment. This money should be placed in an impound or escrow account by the lender. Do your loans have prepayment penalties? Prepayment penalty is for the first 5 month only! We only charge you a prepayment penalty if you payoff our loan within the first 5 month of closing your loan. This is to discourage early payoffs and to protect our investors from churning / flipping of loans. Do I have to have an impound account? None of our programs require you to have an impound account unless the Loan-to-Value ratio is over 80%. Even then, impounds can be waived on some programs. What is the minimum down payment required? The minimum down payment required for our programs is 5% of the purchase price. What is the maximum debt-to-income ratio? On conforming loans, there is no maximum debt to income ratio. With good compensating factors, we have approved loans with ratios as high as 70%. On jumbo loans, the maximum debt to income ratio is 40% to 50% depending on the loan program. What is the minimum FICO score? On conforming loans, the minimum FICO score is 580, with FICOs between 580 and 620 having slightly higher rates. On jumbo loans, the minimum acceptable FICO score is 620, with FICO between 620 and 660 having slightly higher rates. Can I set up a direct debit to make my monthly payment? Most of our services allow you to set up a direct debit to make your monthly payment. Upon receiving notification regarding the servicer for your loan, contact the toll-free number provided to set up your direct debit. Can I make a bi-weekly payment? Many of our servicers allow you to set up bi-weekly payments. However, you should seriously weigh the merits of this program before setting it up. A bi-weekly payment program pays off the mortgage early by making 13 payments each year (52 weeks in a year divided by 2 equals 26 half payments or 13 full payments). By simply paying an extra 1/12 of a payment each month, you will pay your mortgage off faster and avoid any administration fees associated with the biweekly payment program. Use our Mortgage Loan Calculator to set up a prepayment schedule that is right for you. Can I make extra principal payments so I can pay off the loan more quickly? Depending on the loan, and what your state permits, it is feasible for you to make extra payments on the loan. Extra payments will have an effect on the amortization schedule over the remaining term of your loan. What about easy qualifier loans that do not require as much supporting documentation? It all depends on your FICO and Loan-to-Value. These loan programs are becoming increasingly popular but have slightly higher rates. 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. Generally you can borrow more for a property that you occupy as your primary residence than you can borrow for a vacation home or an investment property. It also makes a difference whether your looking to purchase a new home or refinance a home you already own. How do I calculate my Loan-to-Value ratio (LTV)? The Loan-to-Value ratio (or LTV) is one of the most important factors in your loan process. It is used to determine the limits within which your Housing and Debt ratios must fall for you to be approved. It can also determine which fees you will be charged for your loan, and the amount of these fees. It will also determine whether you must pay Private Mortgage Insurance (PMI) and use an Impound/Escrow Account. Loan-to-Value ratio (LTV) is simply the amount you are borrowing divided by the value of the subject property you are purchasing or refinancing. This gives you a simple ratio. The value of your property is its appraised value OR the amount you pay for the property whichever is lower. In the initial stages of qualification and approval, your property's value is understood to be an estimate. It will be confirmed, if necessary for your particular loan, by a professional appraiser hired by Shearsons Mortgage. Can I subordinate my current second mortgage? While it is possible to subordinate your current second mortgage, the extra time your current lender requires to process the subordination request could cause your loan process to extend past your rate lock period resulting in a repricing of your loan. Because Shearsons Mortgage offers low rate second mortgages, a better option may to pay off your current second mortgage with a new loan. How much can I borrow on a second mortgage? Shearsons Mortgage offers second mortgage programs up to $250,000 and up to 100% of the value of your home. The higher the loan-to-value ratio, the higher the interest rate. Can I spend the funds received on a second mortgage for any purpose? Yes. There are no restrictions to how the funds are used. How do I determine the points I want to pay? Points are paid when the loan closes, not at the time you apply for the loan. Generally speaking, points are fees added on to loans. One point equals 1% of the loan amount. When you get a loan, you'll have the opportunity to "buy down" the interest rate by paying discount points - essentially paying a fee to lower your interest rate. By lowering your interest rate, you will be lowering your monthly payment and the amount of interest you'll be paying over the life of the loan. You pay more at the beginning of your loan but will save money in the long run. Keep this in mind as you determine whether to pay points. Paying points requires a higher immediate expenditure, so it may not be for you. In that case, let the loan do its job - allowing you to borrow the money you need and pay it back as you can. Should I pay discount points in exchange for a lower interest rate? Discount points are considered a form of interest. Each discount points 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 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. What's the difference between a home equity loan and a refinance? A home equity loan is generally a second mortgage against your home, meaning it is a loan that you take out using your home as collateral without paying off your first mortgage. A refinance typically means that you'll be paying off your existing first mortgage and replacing it with a new first mortgage. Determining whether it's best to refinance or to obtain a home equity loan is very complicated and depends on many factors. You should consider contacting your tax advisor to determine what makes the most sense for you. In general, a home equity loan should be considered: The lower the interest rate on your first mortgage is The shorter the remaining term on your first mortgage is The shorter the term is on the second mortgage you are considering The higher the rate and points on a new first mortgage The requirement of mortgage insurance for a new first mortgage Comparing monthly payments of your existing first mortgage and a new home equity loan as opposed to a new first mortgage should help. You should also keep in mind the term of each of your loans, especially if monthly payment is not a significant issue for you. 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 importantly - you'll pay less than half the total interest cost of the traditional 30-year mortgage. However, if you can't afford the higher monthly payment of a 15-year mortgage don't feel alone. Many borrowers find the higher payment out of reach and choose a 30 year mortgage. It still makes sense to use a 30 year mortgage for most people. How can I save on a Fixed Rate Mortgage? Short Term Mortgages You don't have to finance your home for 30 years. Granted, the payments will be lower, but you'll be paying them longer. You could, instead, opt for a period of 20, 15 or even 10 years, pay your home off sooner and save in interest. Furthermore, lenders offer much more attractive interest rates with short-term loans, so your payments may not be as much as you'd think. The table below shows you the interest savings on a $100,000 loan at 8.5% interest: Term Monthly Payment Total Interest Accrued 30 yr $768.91 $176,808.95 20 yr $867.83 $108,277.58 15 yr $984.74 $77,253.12 By paying $215.83 more a month on a 15-year mortgage, you'd save $99,555.83 in interest over a 30-year loan - and own the house in half the time. How can a shorter term save me money on a Fixed-Rate Mortgage? By opting for a shorter term, you can save thousands of dollars in interest - not only because you'll be paying off the loan sooner, but lenders generally offer better interest rates on shorter-term loans. And though your payment will be more each month, it may not be as much as you may think. The grid below illustrates the savings on a $100,000 loan at 8.5% interest. Term Monthly Payment Total Interest Accrued 30 yr. $768.91 $176,808.95 15 yr. $984.74 $77,253.12 How does an ADJUSTABLE RATE MORTAGE work? Adjustable rate mortgages allow the borrower to make lower initial payments in comparison to fixed rate mortgages. These payments increase over time to meet the market rate. An adjustable rate mortgage works well for younger buyers whose income will grow or self employed borrowers whose income can fluctuate. There is a large selection of adjustable loans tailored for specific needs. You will need to know the start rate, fully adjusted rate (which is the Index + Margin), and whether the loan has Negative or No-Negative amortization options. You will also need to know the Life cap of the loan. Consult your loan advisor or view the enclosed guide to adjustable rate mortgages. How is "Start rate" different from "Qualifying rate"? Start rate determines the initial payment; the qualifying rate is determined by the programs guidelines and is used to calculate the borrower's ability to re-pay the loan. Qualification rate is often the payment for the second year of the loan or the rate plus 2%. (An adjustable rate loan with a start rate of 5% will often have a qualification rate of 7%). A common misconception is that by choosing an adjustable rate mortgage with a lower initial payment, the borrower can qualify easier. In reality, the borrower has to qualify for a higher payment. How is start rate different from APR? The APR is the rate after taking financial costs of the loan into consideration. Please see the following for information regarding APR. APR is a calculation that expresses the total cost of a mortgage loan as a yearly rate (according to a federally mandated procedure). The APR calculation takes into account monthly interest payments, mortgage insurance, points, and certain fees paid at origination. It generally results in a rate slightly higher than the stated interest rate on the loan. What is an intermediate fixed rate mortgage? An intermediate fixed is a mortgage with a fixed rate for the first few years, which then becomes either an adjustable or has a balloon payment. The fixed period is typically 3,5,7,10 years. These loans are recommended for borrowers who plan to move within the fixed period or when interest rates are high and you expect them to come down. Always consult with your loan advisor before recommending one of these loans and be sure to emphasize what happens to the loan after the initial fixed period. Why offer a balloon loans? Balloon loans generally offer a lower payment for a shorter period of time. If the borrower is purchasing a property that he knows he will refinance in 3,5,or 7 years, a balloon loan may be right for him. Why pay points? Points are used to reduce the rate and thereby the payment. When a borrower pays points on a purchase loan, the borrower receives tax benefits as well as lower payments over the life of the loan. When do I select a zero point option? When the borrower intends to keep the loan for a very short time a zero point option may benefit the borrower. A zero point loan usually has an interest rate of .5% to 1% higher depending on the borrower's credit and income and the loan he selects. It is seldom advantageous for a borrower to select a Zero Point loan on a loan of $150,000 or less. Equal Housing Lender. Casa Blanca Mortgage, Inc., DBA Shearsons Mortgage. Some products may not be available in all states. ©2005 Shearsons Mortgage. All rights reserved. About Us| Contact Us| Terms of Use| Privacy Policy| Careers| Licensing|