Are you in the market for a new home loan or a home refinance loan? If so, just how much do you know about mortgages and the home financing industry? For example, were you aware of these six lesser known mortgage facts?
1. Mortgages rates have risen, but not nearly to historic levels. Yes, mortgage interest rates have increased slightly over the last year. However, did you realize that the average interest rate for a home loan in 1981 was 18.45%?
2. Roughly half of all mortgages in the United States are conventional loans. There are a variety of loan products, chiefly FHA (loans that are backed by the US government to provide protection to the lender), VA loans (loans designed for veterans and active service personnel) and conventional loans. Conventional loans are offered via banks, brokers and credit unions and are available to borrowers who are purchasing single family homes valued at $647,500 or less (except in a few high-cost areas).
3. The term “mortgage” comes from the Old French words for “death pledge”. That’s not as morbid as it sounds. The premise of a mortgage is that you keep making the payments until the loan is paid off, sometimes referred to as “killing the loan”.
4. Some adjustable mortgage rates only go up, not down. The rates of adjustable rate mortgages, also known as ARMs, are tied to a financial index and are reevaluated at set intervals, usually every one, three or five years. If the index goes up, your interest rate goes up. However, not all ARMs are set up to go down if the index goes down. Some stay the same if the index decreases. That’s why it’s so important to read the fine print on your loan agreement.
5. You can eliminate having to pay for mortgage insurance with a 20% down payment.Private mortgage insurance (PMI) is required by most lenders if you are putting less that 20% down on your loan. This insurance, which is priced as a percentage of the amount of your loan, protects your lender should you default on your mortgage. PMI can easily run you an extra $100 to $200 per month in addition to your mortgage payment. However, once you have accumulated at least 20% equity in your home, you can call your lender and request that the PMI be removed from your account.
6. Lenders prefer income to assets when evaluating your loan application. Your healthy savings account, that you’ve been carefully building for years, is less attractive to your bank than your income. That’s because you will continue to be paid your salary (hopefully), whereas you could empty your bank account the minute your home purchase closes. And, many people do overspend for renovations and furnishings for their new home.
To learn more about financing for your next home, contact The Potempa Team today! We have more than 25 years experience helping families like yours purchase their homes.