Questions About Little Rock Mortgages Answered.
Find the answers to the top 10 questions about
mortgages. The most crucial information you'll need for buying, selling
or owning your home. A home mortgage will probably be the biggest
financial decision you ever make. We'll try to help you make the best
Let's start here by getting
answers to these top
10 basic mortgage questions.
1. What Exactly is a Mortgage?
A mortgage is a form of loan that uses your land
and house as security (also known as collateral}.
The mortgage company (mortgage lender) has the right to foreclose
if you don't pay back the loan as required.
Foreclosure is just the legal process the lender
will go through to repossess a mortgaged property.
2. Why Are There So Many Mortgage Types and Which
One is Best For Me?
Basically, there are different mortgage types to
fit a variety of situations. The best mortgage type for you
really depends on your personal circumstances.
You need to find a
mortgage lender that will take into account your credit report, current
assets, and job history. Then they can recommend some options for
Little Rock mortgages that are best suited to your situation.
The main question you need to answer is: how long
do you plan on
staying in this house? A lot of the time the answer to that question
will help you decide which mortgage type is the best for you.
3. Why Does the Length of Time I Plan to Live in
the House Matter?
Because that is one of the main determining
factors for which mortgage type is the best for you.
general rule is that if you plan on staying in the house a long time -
a fixed rate loan may be best. The initial interest rate may be a
little higher but your payments won't change for the life of the
Conversely, if you don't plan on staying very
ARM may be the best of the Little Rock mortgages to consider. You will
have a lower interest rate at first, and if rates do go up, you'll
probably be out of the house by then.
It also helps you decide if interest rates or points
will matter the most to you.
Most Arkansas mortgage companies charge what are
known as "loan discount points". Each point equals
1% of the total loan amount. You are paying the lender these points to
reduce the interest rate on your loan.
So if you have paid a mortgage company points to
get a reduced interest
rate, and you only keep your house a few years, you may never recoup
your extra cost for the points.
Just be sure to compare
several mortgage types to make sure you get the best one for your
situation. Also be sure you know what effect points will have on your
Rock mortgage companies and banks will have the latest rates available
for all the mortgage types. It's always a good idea to shop for the
best rates among several lenders. Just be aware that some lenders will
advertise "teaser rates" to make them look lower than they really are.
5. Why Are Some Rates Advertised as Percentages,
and Others as APR?
APR (Annual Percentage Rate} is the most accurate indicator of what you
will actually be paying. It includes interest, points, and fees
together in an annual rate. When most mortgage lenders quote you a
rate, it will be for interest only.
Make sure you get APR
rates from each lender for the different types of Little Rock mortgages
you're considering. Then you can make a fair comparison between them to
see who actually has the best deal.
6. What is Amortization?
It is a true measure of what you are actually
paying each year on your loan. Your amortization schedule
shows the amount of interest and principal that is paid. Payments are
spread evenly for the term of the loan, but interest makes up the
majority of the payment at the beginning of the mortgage. Principal is
not significantly paid down until the last few years of the loan.
7. What Are the Indexes For ARM Rates?
ARM loan interest
rates are determined by 2 factors. A pre-set margin, usually 2%-2.5%,
and an index which is periodically adjusted. If the index goes up - so
does the interest rate you pay. That's what makes them "Adjustable
The main thing to understand is some indexes
that others. That means your payment amount changes more often. That
can be good or bad, depending on whether the index is going up or down.
Just make sure you understand how the index affects your
Here's a list of some of the most commonly used
T-bills - based on the US treasury bill index.
The most commonly used.
LIBOR (London Interbank Offered Rate Index),
based on international rates.
COFI (11th District Cost of Funds Index), based
on a moving average of rates.
Prime Lending Rate
8. What is a Prepayment Penalty?
This is a penalty charged by
some Little Rock mortgage companies for paying your loan off early.
After a loan is originated, you would be subject to this penalty for a
specific period of time, usually 1-3 years. The penalties normally vary
from around 6 months of interest to 2% of the total loan amount.
Why would you ever agree to something like this?
Because some lenders
offer lower interest rates on their Little Rock mortgages, which could
save you thousands of dollars on interest.
If you have credit problems, you may have to
agree to penalties like this to get a mortgage at all.
9. How is a Non-Traditional Loan Different From a
you have paid any attention to the news lately, it was non-traditional
loans that caused the problem. From what I understand, there were very
few non-traditional Little Rock mortgages written. But we'll cover some
of the most popular types anyway.
Interest only loans -
means the buyer pays only on the interest and not the principal. It
keeps the payments lower at first so it works best for short term loans.
Payment option ARM's - The
buyer can choose among several payment types:
Negative amortization. Increases the principal
A great way to pile up debt in a hurry. I would
stay away from these unless you really know what you're doing.
Zero down loans
- Don't require a down payment. VA loans are zero down, but guaranteed
by the government. Most other buyers will have to have some typeof
second mortgage or piggyback loan to complete the transaction.
- have a specified payment schedule in which interest and principal are
paid and have a conventional down payment, usually 20%. Fixed rate and
conventional ARM loans are two examples.
Private Mortgage Insurance
(PMI) insures the mortgage company against loss if you default on the
home loan. PMI is normally required if the down payment is less than
20%. When your equity reaches 20%, the PMI requirement is usually
Federal loan programs like VA and FHA are insured
government rather than PMI. VA loans don't have monthly mortgage
insurance fees, but new FHA loans do.