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Top Ten Questions About Little Rock Mortgages Answered.

Find the answers to the top 10 questions about Little Rock 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 one.

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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.

See our Little Rock home loans page for more details on all the different loan types.

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.

The 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 mortgage.

Conversely, if you don't plan on staying very long, an 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 interest rate.

Click here to learn more about the different types of Little Rock mortgages.

4. Where Can I Find Today's Mortgage Loan Rates?

Little 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?

The 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 Rate".

The main thing to understand is some indexes change faster 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 loan.

Here's a list of some of the most commonly used indexes.

  • 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 Traditional?

If 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 amount.
  • Interest only.
  • Fully amortized.

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.

Traditional loans - 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.

Click here for more info on the different loan types.

10. What is PMI?

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 dropped.

Federal loan programs like VA and FHA are insured by the government rather than PMI. VA loans don't have monthly mortgage insurance fees, but new FHA loans do.

Click for more info on different types of Little Rock mortgages.

Related Links:

Little Rock Home Appraisal.

Little Rock Real Estate.

Little Rock Commercial Real Estate.

Little Rock Homes Guide.

Little Rock News.

Return to Little Rock Living Home page.
Go to Little Rock Home Loan info.

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