We’re here to help with all the technical details of a mortgage situation at Altius Mortgage and our partners at Mortgage Ogden, but that’s not all we do. Our mortgage brokers are also here to offer advice, opinions and expertise throughout the process, including areas you might be confused about.
One of the largest such areas many people need help with? Determining what sort of mortgage they can realistically afford for the future. Here are a few of the most important factors that will play a role in what sort of home loan you can afford.
Income Vs. Expenses
Within your finances, lenders are going to be looking at both your income and regular expenses. Income will be calculated as net, or on a post-tax basis. A vital factor is debt to income ratio – for many of the best mortgage rates and loan terms, lenders will require a ratio here that’s under 40 percent based on growth monthly income before taxes.
There are a few popular rules of thumb that come into play here when you’re searching for a new home. One states that you should never take on a mortgage for more than two and a half times your annual salary, for instance, and this can be a good baseline for many people.
Especially in recent years, down payment amounts have become a huge factor in mortgage situations. Coming up with a 20 percent down payment or more allows you to avoid private mortgage insurance in most cases, which can create a significant savings for you over the life of the mortgage.
A credit report with any significant negative marks, such as late payments or defaults, could have a big impact on the loans that are right for you. Bad credit can cause mortgage rates to skyrocket, and will make you ineligible for certain kinds as well.
Want to learn more about the right kinds of loans for your financial situation? Our brokers are here to help. Contact us at Altius Mortgage today.
For certain people, adjustable-rate mortgages are the preferred loan format. This is a format where mortgage rates can change through the life of the loan, and the number you’re repaying to mortgage lenders may change.
For people who stand to potentially benefit from the benefits of these kinds of loans (lower starting rates and requirements in many cases, for one), knowing which factors influence the adjustable mortgage rates in these loans is vital. Courtesy of Altius Mortgage and our partners at Mortgage Ogden, here are the basics on how changing mortgage rates are influenced.
Also called reference rate, this is the average rate at which a given financial institution borrows unsecured funds. The index is the largest factor behind changes in interest rates for ARM loans. Different mortgages use different indexes – in the United States, these are the most common:
COFI: Short for 11th District Cost of Funds Index, this is based on reports from qualified member banks of the Federal Home Loan Bank of San Francisco. It’s updated once a month.
LIBOR: Short for London Interbank Offered Rate, this is updated daily and is used most commonly by private lenders.
MTA: This represents 120-month Treasury Average Index, and is based on a 12-month average of yields of securities issued by the US Treasury. This index is calculated monthly, and is considered very stable.
CMT: Or Constant Maturity Treasury, this is also based on the US Treasury yield, though it has to do with maturity dates on securities. CMT is more volatile than many others.
National Average Contract Mortgage Rate: An index based on the rates homebuyers paid if they bought within five working days of the end of the month. This is the traditional, most common index for ARM loans.
Because sharp rises could put people in a huge financial bind, index caps were created. These cap how much interest can change, either for the life of the loan or within a certain specific period. However, be aware that index caps only apply for interest – extra money above the cap is redistributed toward the balance, and can lead to higher monthly payments.
This is a fixed number that’s settled on before the loan. It’s not adjusted during the loan, so it lends some stability.
In some cases, you can receive a discount for a year or two on your ARM. Speak to your broker about whether this is possible in your situation.
Want to learn more about mortgages, or any of our services? Speak to one of our mortgage brokers at Altius Mortgage today.