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.
One thing that’s very rarely considered among people looking for a mortgage, especially first time home buyers, is the monthly timing of lenders and the overall market. The mortgage world works on a monthly cycle that’s continuously rolling over, and knowing a few details about the ins and outs of this process can make your mortgage experience that much simpler and more straightforward.
As a premier mortgage broker in Utah, Altius Mortgage is here to help you with little bits of insider knowledge like these. How does the monthly mortgage cycle work, and how can this affect your experience? Let’s take a look.
Start of the Month
The beginning of the month is typically the time where lenders will be at their most devoted to acquiring and activating new mortgages. This is when loan officers will be most eager to return phone calls, answer emails and be proactive about reaching out to potential clients.
For the most part, this is because the cycle dictates this as the “business-gathering” period of each month. Officers should have already closed all their new loans for the previous month during the final week or 10 days of that previous month, and they’re now eager to begin racing toward their next quota. In general, the beginning of the month is by far the best time to apply for a loan if you have convenience and ease of communication with the lender in mind.
Middle of the Month
In the middle couple weeks of the month, lenders are primarily going about the business of gathering various documents and arranging loans to be signed and completed at the end of the month. This is the paperwork phase, if you will. This isn’t to say that loan officers simply won’t accept new applications during these periods, but rather that more of their attention is generally focused on this middle phase.
End of the Month
The end of the month is closing time. Officers are racing to get all their new loans from that month closed out to meet their general quotas, and clear their slate as much as possible before the new month begins. This is the worst time to file for a new mortgage, especially if you’re looking for quick approval or any individual attention.
Now that you have a basic understanding of the mortgage cycle, you’re ready to learn more about all our professional mortgage services at Altius Mortgage. Speak with one of our brokers about your options today.
Many home buyers recruit the services of a mortgage broker when shopping for a mortgage. An experienced and knowledgeable mortgage broker can help you find the right mortgage, but there are advantages and disadvantage to consider before committing.
Saves you the Legwork – Mortgage brokers have frequent contact with a vast array of lenders, some you may not even know about. A broker will save you the time and energy having to call up dozens of lenders comparing terms and rates on your own.
Brokers Have More Access – There are some lenders that you may not be able to call directly as they will only work with mortgage brokers. A broker could also be able to get special rates from lenders depending on the volume of business they generate.
You May Have Some Fees – There can be many different fees involved in a new mortgage such as application fees, appraisal fees, or origination fees. Sometimes mortgage brokers can get lender to waive some or all fees and that can save you hundreds to thousands of dollars.
Brokers’ Interests Might not Match Yours – You are in it for the long haul so your ultimate goal should be to find a mortgage with affordable interest rate and low fees. A mortgage broker will often get paid a fee for bringing the lender business. Fees can be based on the amount of the mortgage; therefore the broker’s goal may be to get you the mortgage that gets them the most compensation.
You Might not be Getting the Best Deal – Sometimes a lender may offer buyers precisely the same terms and rates that they offer brokers and sometimes even better. It doesn’t hurt to shop around on your own to see if your broker is really getting you a good deal.
Brokers Often do not Guarantee Estimates – Broker’s often use the term “good faith estimate” when presenting you with the lender’s offer. The broker believes that these offers will mirror what the final terms of the deal are. The lender might change the terms based on your application in some cases, and this may cause you to pay higher rates or extra fees.
If you choose to use the services of a mortgage broker, work with a reliable one with solid references that can guarantee their loan estimates.