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To assist you in your mortgage process, we have provided a
mortgage application for you to download and print. If you prefer,
you can also fill out the application securely online. The
application should be completed with the assistance of a mortgage
professional. You will need a browser compatible with PDF files or
you will need to download Adobe Acrobat Reader to view and print
PDF files on all major computer platforms.
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Fixed Rate
Mortgages |
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The most common type of mortgage
program where your monthly payments for interest and
principal never change. Property taxes and homeowners
insurance may increase, but generally your monthly payments
will be very stable.
Fixed-rate mortgages are available for 30 years, 20
years, 15 years and even 10 years. There are also
"bi-weekly" mortgages, which shorten the loan by calling for
half the monthly payment every two weeks. (Since there are
52 weeks in a year, you make 26 payments, or 13 "months"
worth, every year.)
Fixed rate fully amortizing loans have two distinct
features. First, the interest rate remains fixed for the
life of the loan. Secondly, the payments remain level for
the life of the loan and are structured to repay the loan at
the end of the loan term. The most common fixed rate loans
are 15 year and 30 year mortgages.
During the early amortization period, a large percentage
of the monthly payment is used for paying the interest . As
the loan is paid down, more of the monthly payment is
applied to principal . A typical 30 year fixed rate mortgage
takes 22.5 years of level payments to pay half of the
original loan amount.
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Adjustable Rate Mortgages |
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These loans generally begin with
an interest rate that is 2-3 percent below a comparable
fixed rate mortgage, and could allow you to buy a more
expensive home.
However, the interest rate changes at specified intervals
(for example, every year) depending on changing market
conditions; if interest rates go up, your monthly mortgage
payment will go up, too. However, if rates go down, your
mortgage payment will drop also.
There are also mortgages that combine.phpects of fixed
and adjustable rate mortgages - starting at a low fixed-rate
for seven to ten years, for example, then adjusting to
market conditions. Ask your mortgage professional about
these and other special kinds of mortgages that fit your
specific financial situation
More ARM
Information
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Standard ARM
Programs |
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A few options are available to fit
your individual needs and your risk tolerance with the
various market instruments.
ARMs with different indexes are available for both
purchases and refinances. Choosing an ARM with an index that
reacts quickly lets you take full advantage of falling
interest rates. An index that lags behind the market lets
you take advantage of lower rates after market rates have
started to adjust upward.
The interest rate and monthly payment can change based on
adjustments to the index rate.
6-Month Certificate of
Deposit (CD) ARM
Has a maximum interest rate adjustment of 1% every six
months. The 6-month Certificate of Deposit (CD) index is
generally considered to react quickly to changes in the
market.
1-Year Treasury Spot ARM
Has a maximum interest rate adjustment of 2% every 12
months. The 1-Year Treasury Spot index generally reacts more
slowly than the CD index, but more quickly than the Treasury
Average index.
6-Month Treasury Average
ARM
Has a maximum interest rate adjustment of 1% every six
months. The Treasury Average index generally reacts more
slowly in fluctuating markets so adjustments in the ARM
interest rate will lag behind some other market indicators.
12-Month Treasury Average
ARM
Has a maximum interest rate adjustment of 2% every 12
months. The treasury Average index generally reacts more
slowly in fluctuating markets so adjustments in the ARM
interest rate will lag behind some other market indicators.
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Introductory Rate ARM's |
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Most adjustable rate loans (ARMs)
have a low introductory rate or start rate, some times as
much as 5.0% below the current market rate of a fixed loan.
This start rate is usually good from 1 month to as long as
10 years. As a rule the lower the start rate the shorter the
time before the loan makes its first adjustment.
Index - The index of
an ARM is the financial instrument that the loan is "tied"
to, or adjusted to. The most common indices, or, indexes are
the 1-Year Treasury Security, LIBOR (London Interbank
Offered Rate), Prime, 6-Month Certificate of Deposit (CD)
and the 11th District Cost of Funds (COFI). Each of these
indices move up or down based on conditions of the financial
markets.
Margin - The margin
is one of the most important.phpects of ARMs because it is
added to the index to determine the interest rate that you
pay. The margin added to the index is known as the fully
indexed rate. As an example if the current index value is
5.50% and your loan has a margin of 2.5%, your fully indexed
rate is 8.00%. Margins on loans range from 1.75% to 3.5%
depending on the index and the amount financed in relation
to the property value.
Interim Caps - All
adjustable rate loans carry interim caps. Many ARMs have
interest rate caps of six-months or a year. There are loans
that have interest rate caps of three years. Interest rate
caps are beneficial in rising interest rate markets, but can
also keep your interest rate higher than the fully indexed
rate if rates are falling rapidly.
Payment Caps - Some
loans have payment caps instead of interest rate caps. These
loans reduce payment shock in a rising interest rate market,
but can also lead to deferred interest or "negative
amortization". These loans generally cap your annual payment
increases to 7.5% of the previous payment.
Lifetime Caps -
Almost all ARMs have a maximum interest rate or lifetime
interest rate cap. The lifetime cap varies from company to
company and loan to loan. Loans with low lifetime caps
usually have higher margins, and the reverse is also true.
Those loans that carry low margins often have higher
lifetime caps.
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LIBOR - London
InterBank Offered Rate |
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LIBOR is the rate on
dollar-denominated deposits, also know as Eurodollars,
traded between banks in London. The index is quoted for one
month, three months, six months as well as one-year periods.
LIBOR is the base interest rate paid on deposits between
banks in the Eurodollar market. A Eurodollar is a dollar
deposited in a bank in a country where the currency is not
the dollar. The Eurodollar market has been around for over
40 years and is a major component of the International
financial market. London is the center of the Euromarket in
terms of volume.
The LIBOR rate quoted in the Wall Street Journal is an
average of rate quotes from five major banks. Bank of
America, Barclays, Bank of Tokyo, Deutsche Bank and Swiss
Bank.
The most common quote for mortgages is the 6-month quote.
LIBOR's cost of money is a widely monitored international
interest rate indicator. LIBOR is currently being used by
both Fannie Mae and Freddie Mac as an index on the loans
they purchase.
LIBOR is quoted daily in the Wall Street Journal's Money
Rates and compares most closely to the 1-Year Treasury
Security index.
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Balloon Mortgages
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Balloon loans are short term
mortgages that have some features of a fixed rate mortgage.
The loans provide a level payment feature during the term of
the loan, but as opposed to the 30 year fixed rate mortgage,
balloon loans do not fully amortize over the original term.
Balloon loans can have many types of maturities, but most
balloons that are first mortgages have a term of 5 to 7
years.
At the end of the loan term there is still a remaining
principal loan balance and the mortgage company generally
requires that the loan be paid in full, which can be
accomplished by refinancing. Many companies have other
options such as a conversion feature at the end of the term.
For example, the loan may convert to a 30 year fixed loan at
the thirty year market rate plus 3/8 of a percentage point.
Your conversion can be guaranteed based on certain criteria
such as having made your last 24 payments on time. The
balloon mortgage program with the conversion option is often
called a 7/23 Convertible or 5/25 Convertible.
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Buydown Options
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The most common buydown is the 2-1
buydown. In the past, for a buyer to secure a 2-1 buydown they
would pay 3 points above current market points in order to pay
a below market interest rate during the first two years of the
loan. At the end of the two years they would then pay the old
market rate for the remaining term.
As an example, if the current market rate for a conforming
fixed rate loan is 8.5% at a cost of 1.5 points, the buydown
gives the borrower a first year rate of 6.50%, a second year
rate of 7.50% and a third through 30th year rate of 8.50% and
the cost would be 4.5 points. Buydown were usually paid for by
a transferring company because of the high points associated
with them.
In today's market, mortgage companies have designed
variations of the old buy downs rather than charge higher
points to the buyer in the beginning they increase the note
rate to cover their yields in the later years.
As an example, if the current rate for a conforming fixed
rate loan is 8.50% at a cost of 1.5 points, the buydown would
give the buyer a first year rate of 7.25%, a second year rate
of 8.25% and a third through 30th year rate of 9.25% , or a
three-quarter point higher note rate than the current market
and the cost would remain at 1.5 points.
Another common buydown is the 3-2-1 buydown which works
much in the same ways as the 2-1 buydown, with the exception
of the starting interest rate being 3% below the note rate.
Another variation is the flex-fixed buydown programs that
increase at six month interval rather than annual intervals.
As an example, for a flex-fixed jumbo buydown at a cost of
1.5 points, the first six months rate would be 7.50%, the
second six months the rate would be 8.00%, the next six months
rate would be 8.50%, the next six months rate would be 9.00%,
the next six months the rate would be 9.50% and at the 37th
month the rate would reach the note rate of 9.875% and would
remain there for the remainder of the term. A comparable jumbo
30 year fixed at 1.5 points would be 8.875%.
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COFI ARM Cost of Funds Index
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The 11th District Cost of Funds is
more prevalent in the West and the 1-Year Treasury Security
is more prevalent in the East. Buyers prefer the slowly
moving 11th District Cost of Funds and investors prefer the
1-Year Treasury Security.
The monthly weighted average Eleventh District has been
published by the Federal Home Loan Bank of San Francisco
since August 1981. Currently more than one half of the
savings institutions loans made in California are tied to
the 11th District Cost of Funds (COF) index.
The Federal Home Loan Bank's 11th District is comprised
of saving institutions in Arizona, California and Nevada.
Few people who use and follow the 11th District Cost of
Funds understand exactly how it is calculated, what it
represents, how it moves and what factors affect it.
The predecessor to the 11th District Cost of Funds index
was the District semiannual weighted average cost of funds
published for a six month period ending in June and
December. The San Francisco Bank was the first Federal Home
Loan Bank to publish a monthly cost of funds index.
The funds used as a basis for the calculation of the 11th
District Cost of Funds index are the liabilities at the
District savings institutions: money on deposit at the
institutions, money borrowed from a Federal Home Loan Bank
(known as advances) and all other money borrowed. The
interest paid on these types of funds is the cost of these
funds.
The ratio of the dollar amount paid in interest during
the month to the average dollar amount of the funds for that
month constitutes the weighted average cost of funds ratio
for that month.
The average cost of funds is said to be weighted because
the three kinds of funds and their costs are added together
before a ratio is computed rather than calculating averages
individually for the three sources and using a simple
average of the three ratios. This gives the greatest weight
to the interest paid on deposits, and explains the delayed
reaction of the index to rising fixed-rate mortgages.
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GPM Graduated Payment Mortgage
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The GPM is another alternative to
the conventional adjustable rate mortgage, and is making a
comeback as borrowers and mortgage companies seek
alternatives to assist in qualify for home financing
Unlike an ARM, GPMs have a fixed note rate and payment
schedule. With a GPM the payments are usually fixed for one
year at a time. Each year for five years the payments
graduate at 7.5% - 12.5% of the previous years payment.
GPMs are available in 30 year and 15 year amortization,
and for both conforming and jumbo loans. With the graduated
payments and a fixed note rate, GPMs have scheduled negative
amortization of approximately 10% - 12% of the loan amount
depending on the note rate. The higher the note rate the
larger degree of negative amortization. This compares to the
possible negative amortization of a monthly adjusting ARM of
10% of the loan amount. Both loans give the consumer the
ability to pay the additional principal and avoid the
negative amortization. In contrast, the GPM has a fixed
payment schedule so the additional principal payments reduce
the term of the loan. The ARMs additional payments avoid the
negative amortization and the payments decrease while the
term of the loan remains constant.
The scheduled negative amortization on a GPM differs
depending on the amortization schedule, the note rate and
the payment increases of the loan. GPM loans with 7.5%
annual payment increases offer the lowest qualifying rate
but the largest amount of negative amortization.
On a loan of $150,000, with a 30 year amortization and a
note rate of 10.50% with 12.5% annual payment increases, the
negative amortization continues for 60 months. The
qualifying rate is 5.75% and the negative amortization is
11.34% (approximately $17,010).
The note rate of a GPM is traditionally .5% to .75%
higher than the note rate of a straight fixed rate mortgage.
The higher note rate and scheduled negative amortization of
the GPM makes the cost of the mortgage more expensive to the
borrower in the long run. In addition, the borrowers monthly
payment can increase by as much as 50% by the final payment
adjustment.
The lower qualifying rate of the GPM can help borrowers
maximize their purchasing power, and can be useful in a
market with rapid appreciation. In markets where
appreciation is moderate, and a borrower needs to move
during the scheduled negative amortization period they could
create an unpleasant situation.
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