What You Need to Know About Your Mortgage Insurance
Up to $700,000,000 per year is unnecessarily paid to Private Mortgage Insurance Companies by homeowners. If you are paying Mortgage Insurance or PMI (as it is regularly called), now is the time to check and see if you qualify to eliminate it from your monthly payment.
Below are some of the guidelines of carrying PMI.
1. You must determine the date you signed your mortgage. There are different rules for mortgages taken before July 29, 1999. These requirements are for those mortgages signed after July 29, 1999.
2. Your mortgage insurance will “automatically” drop off when your mortgage is paid down to 78% from its “original” value. That means that even if the value of your property has increased substantially, the lender is required to use the lesser of the two values.
3. Mortgage Insurance has a two-year waiting period before a lender can even consider dropping that portion of the payment. However, there are two exceptions to this rule: (In both instances-you must request that it be canceled.)
A. You have paid money towards the principal balance and have reached the 80% of the original value.
B. You have substantially improved the property (such as a room addition or a second story addition – just remodeling is not enough) and you can prove it with a new appraisal.
4. After two years, you can request that the mortgage insurance portion of your payment be dropped. However, it must meet these parameters:
A. You must provide a new appraisal. (The appraiser must be approved by your lender. The lender has the right to dispute the value.)
B. You must have a good payment history on your mortgage.
C. The Loan to Value Ratio must be 75% or less-based upon the new appraisal.
5. After five years, the same rules as #3 apply; however, the loan-to-value ratio increases to 80% of the appraised value.
6. If you have a second mortgages on your property, it will not affect your ability to get your mortgage insurance payment waived and it will NOT be considered in the loan-to-value calculations.
Each “type” of mortgage (i.e., adjustable rate, balloon, etc.) has its own set of regulations. In addition, some states have passed their own legislation, which makes canceling your mortgage insurance easier. However, I recommend that you call your lender and request their rules on what is required to eliminate it from your payment.
When you receive the letter of instructions from your lender, call me and I will help you determine what is needed and if you qualify.
Tuesday, November 29, 2005
Saturday, July 30, 2005
APR
The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.
Example: 30-year fixed 8 percent 1 point 8.107% APR
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan. The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
Ideally, one should be able to compare APRs from various lenders, then select the loan with the lowest APR. Unfortunately it's not that simple. Various lenders calculate APRs differently! A loan with a lower APR may not be the best choice. A good way to compare different lenders is to ask them to provide a Good Faith Estimate of closing costs. Be sure you compare the same loan program (e.g., 30-year fixed), interest rate and rate lock period. You may ignore fees that are independent of the loan, such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Pay particular attention to loan fees. The lender with the lowest loan fees will likely have the best deal.
The reason why APRs are confusing is because the rules to compute APR are not clearly defined. What fees are included in the APR?
The following fees ARE generally included in the APR:
Points - both discount points and origination points
Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
Loan-processing fee
Underwriting fee
Document-preparation fee
Private mortgage-insurance
The following fees are SOMETIMES included in the APR:
Loan-application fee
Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)
The following fees are normally NOT included in the APR:
Title or abstract fee
Escrow fee
Attorney fee
Notary fee
Document preparation (charged by the closing agent)
Home-inspection fees
Recording fee
Transfer taxes
Credit report
Appraisal fee
Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.
Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.
Finally, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!
Conclusion : Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.
information provided from www.symphonymortgagecompany.com A site hosted by Myer's inc.
Example: 30-year fixed 8 percent 1 point 8.107% APR
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan. The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
Ideally, one should be able to compare APRs from various lenders, then select the loan with the lowest APR. Unfortunately it's not that simple. Various lenders calculate APRs differently! A loan with a lower APR may not be the best choice. A good way to compare different lenders is to ask them to provide a Good Faith Estimate of closing costs. Be sure you compare the same loan program (e.g., 30-year fixed), interest rate and rate lock period. You may ignore fees that are independent of the loan, such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Pay particular attention to loan fees. The lender with the lowest loan fees will likely have the best deal.
The reason why APRs are confusing is because the rules to compute APR are not clearly defined. What fees are included in the APR?
The following fees ARE generally included in the APR:
Points - both discount points and origination points
Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
Loan-processing fee
Underwriting fee
Document-preparation fee
Private mortgage-insurance
The following fees are SOMETIMES included in the APR:
Loan-application fee
Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)
The following fees are normally NOT included in the APR:
Title or abstract fee
Escrow fee
Attorney fee
Notary fee
Document preparation (charged by the closing agent)
Home-inspection fees
Recording fee
Transfer taxes
Credit report
Appraisal fee
Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.
Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.
Finally, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!
Conclusion : Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.
information provided from www.symphonymortgagecompany.com A site hosted by Myer's inc.
Monday, April 25, 2005
Answers to questions
I am here to answer questions regarding the lending industry. From time to time I am asked questions about loan products, appraisals, strategy and all facets of lending. I will use this space to provide some answers. Ask away, have fun.
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