Home equity loans can be a valuable financial tool for homeowners, offering an opportunity to leverage the equity in their home for various purposes. However, like any financial decision, it’s essential to approach these loans with caution and knowledge. This blog will explore the do’s and don’ts of using home equity, guiding you to make informed decisions.
Shop around to find the most favorable interest rates and terms. Different lenders offer varied rates and conditions, so it’s vital to compare and find the best deal that suits your financial situation.
With a home equity loan, your home is the collateral. Ensure that your homeowner’s insurance covers the full value of your home, including the additional amount you might borrow.
Researching various lenders can provide insights into different loan options, rates, and terms. Don’t hesitate to ask questions and understand each lender’s offerings thoroughly.
Home equity loan interest may be tax-deductible under certain conditions. It’s essential to understand these tax implications and how they apply to your situation.
A financial advisor can offer personalized advice based on your financial goals and situation, helping you make the best decision about using your home equity.
Failing to understand the repayment terms can lead to financial strain. Be clear about the repayment schedule, interest rates, and any potential changes in terms.
Home equity loans may come with various fees and costs. Carefully review these charges to avoid unexpected expenses.
Remember, your home is the collateral. Defaulting on the loan could result in losing your home. Understand the risks involved before proceeding.
Be prudent about how you use the borrowed money. It’s wise to invest in home improvements, education, or debt consolidation rather than spending on depreciating assets.
Borrowing more than you need or can afford to repay can lead to financial hardship. Assess your needs realistically and borrow accordingly.
Failing to consider the tax implications of a home equity loan can lead to unexpected tax bills. Consult a tax professional to understand how the loan affects your taxes.
Home equity loans offer significant financial potential but come with certain risks and responsibilities. By adhering to these do’s and don’ts, homeowners can make informed decisions, ensuring they benefit from their home equity without jeopardizing their financial future. Remember, when in doubt, consult a financial advisor for tailored advice. You can book an appointment here
Considering the Doctor Loans Program by Blake Mortgage. Would this be the answer for physicians with negative savings?
The dream of owning a home may seem out of reach for doctors with negative savings due to hefty student loans and other financial obligations. However, several creative solutions can help these professionals achieve homeownership, even with minimal or no down payment. This article will explore a few strategies doctors can consider to make their home-buying aspirations a reality.
Physician home loans, or doctor loans, are specialized mortgage programs explicitly designed for medical professionals. These loans are offered by certain lenders who understand the financial challenges doctors face, including negative savings resulting from extensive education and training. Physician home loans often require little to no down payment and have more flexible underwriting criteria, taking into account future earning potential. By leveraging this type of loan, doctors can overcome their negative savings and purchase a home with minimal upfront costs.
Another potential option for doctors with negative savings is to explore partnerships with medical organizations or hospitals. Some medical institutions provide housing benefits or assistance to their employees, especially those in high-demand specialties. These benefits may include low-cost housing, subsidized rent, or down payment assistance. By taking advantage of such opportunities, doctors can secure affordable housing options while minimizing upfront costs. It is worth reaching out to the human resources departments of medical organizations or hospitals to explore these housing benefits and determine eligibility.
While negative savings may seem a significant obstacle to homeownership, doctors have several options. Physician home loans, down payment assistance programs, and partnering with medical organizations can all help doctors acquire homes with minimal or no down payment. It is crucial for doctors to thoroughly research and explore these options to find the best fit for their specific circumstances. With careful planning and utilization of these strategies, doctors can fulfill their dreams of owning a home, regardless of their negative savings.
Doctor Loans by Blake Mortgage is a specialized mortgage program designed to meet the unique needs of medical professionals. This document provides an overview of the loan program, including loan amounts, eligibility criteria, underwriting guidelines, and other vital details. Whether you are a medical doctor, dentist, pharmacist, or nurse, Blake Mortgage offers tailored financing options to help you achieve your homeownership goals.
The Doctor Loans program offered by Blake Mortgage provides maximum loan amounts of up to $1,500,000. This generous loan limit allows medical professionals to purchase high-value properties and accommodate their specific needs.
The underwriting guidelines for Doctor Loans are by the Non-Agency Underwriting Guidelines, with some product-specific criteria. It is important to note that additional guidelines not mentioned in this document must meet the parameters specified in the Non-Agency Underwriting Guidelines.
To be eligible for a Doctor Loan, at least one borrower must hold a valid license in one of the approved medical fields. The eligible licenses include the following:
Furthermore, the occupying borrower must provide proof of a valid license within one of the approved medical fields and meet the following requirements:
It is important to note that all borrowers can have only one outstanding Professional or Doctor loan at any given time. Additionally, borrowers should not have any other second homes or investment properties financed with the originating bank at the time of closing. Therefore, the total number of financed properties held by all borrowers should be at most four.
All trusts are considered ineligible borrowers for the Doctor Loans program.
The Doctor Loans program covers the following property types:
For minimum credit score requirements, refer to the Eligibility Grid provided by Blake Mortgage.
The qualifying rate for the Doctor Loans program varies based on the ARM (Adjustable Rate Mortgage) term:
The maximum Debt-to-Income (DTI) ratio allowed for Doctor Loans is 45%. However, if the borrower has student loan debt that is deferred for at least 12 months from the application date, the DTI may exceed 45% up to a maximum of 50%. In such cases, the borrower must qualify using a payment equal to 1% of the outstanding balance on the student loans. It is important to note that the maximum DTI of 45% may only be exceeded due to the deferred student loan debt payments.
Reserves are important in determining the borrower’s ability to handle mortgage payments. The required reserves for Doctor Loans are as follows:
When borrowers have financed properties in addition to the subject property, an additional six months of PITIA reserves are required for each property.
Interested party contributions refer to funds contributed by parties involved in the real estate transaction, such as the property seller, builder, real estate agent/broker, mortgage lender, or any other party with an interest in the transaction. These contributions can be used exclusively to cover closing costs and prepaid expenses.
The following contribution limits apply based on the Combined Loan-to-Value (CLTV) ratio:
Minimum Borrower Contributions
Borrowers must contribute at least 3% of the transaction from their funds. The remaining funds can come from a gift per the Non-Agency Underwriting Guidelines, an acceptable FNMA-eligible Community Seconds Program, or an approved Gift/Grant Program.
The Appraisal Review Department will review all appraisals for Doctor Loans. The appraisal requirements depend on the loan amount:
Doctor Loans are underwritten by approved mortgage insurance companies. Each mortgage insurance provider may have additional restrictions not listed in this document. It is recommended to refer to each mortgage insurance company’s website for complete details.
Doctor Loans require mortgage insurance coverage based on the Loan-to-Value (LTV) ratio. The coverage requirements are as follows:
Doctor Loans by Blake Mortgage provides a comprehensive financing solution tailored to the unique needs of medical professionals. With competitive loan amounts, flexible underwriting guidelines, and specific eligibility criteria, this program aims to support doctors, dentists, pharmacists, nurses, and other medical professionals in their homeownership journey. By understanding the loan program’s features and requirements outlined in this document, medical professionals can make informed decisions and take advantage of the benefits offered by Blake Mortgage’s Doctor Loan program.
Don’t wait! Find out about your options today!
What do you need to know about refinancing Rental Properties?
Investing in real estate is one of the many ways to build up wealth. Homeowners buy a house, rent them out, and earn income from the rent.
These houses for rent are purchased through home loans. If you have an investment property or more, you might want to revisit the interest rate as it might be high. Today’s rates are competitive, and you can take advantage of them by mortgage refinancing.
You can get several advantages when you refinance your investment property. Below are some of the benefits that you can get.
Lower interest rates
There is quite a difference in the interest of an investment property and a primary property. The interest rate of a rental property is higher than that of a primary house by 0.5% – 0.75%. The reason is that investment properties are riskier for lenders because banks and lending companies know that if you run into trouble with payments, a borrower will always choose to save their house than a rental property. For this reason, lenders implement higher rates on investment properties.
However, if your rental property is doing well and your track record shows that you are doing well and can manage the payments, you can apply for refinancing and access lower interest rates.
Changing loan terms
You can adjust your loan terms accordingly in a mortgage refinance. You can opt to pay more every month and shorten the loan length, or you can extend your loan terms as needed.
Mortgage refinance rates can be changed from an adjustable rate to a fixed rate so that your monthly amortization is fixed.
Increase rental income
To get the most out of your rental properties, you can do repairs and upgrades that will price your property higher. Some enhancements may include reroofing, adding a basement and renting it out separately, adding more space to the house, and adding appliances. A construction loan can finance these things, or if you are upgrading appliances, a mortgage refinance is the answer.
Before going into refinancing, here are some things to prepare and evaluate.
Knowing your credit score will help you understand your refinancing options if there are some loose ends that you need to take care of to improve your score.
It is also helpful to know your current financial situation to take a mortgage to refinance.
Before refinancing your rental property, you need to gather financial documents similar to when you got the previous loan. These are some of the documents you will need to prepare:
Computing for the monthly amortization will help you set a budget and decide whether to lower your monthly payment or increase it to end the loan term faster.
Before refinancing, research the value of your rental property to give you an idea of how much you can expect.
There are three types of mortgage refinancing: rate–and–term, cash–out, and cash–in. Checking your finances will help you decide which is best for you.
Rate-and-term refinancing is where homeowners can change their current loan’s mortgage rates or loan term, or in some cases, both. The goal of this type is to save money.
In cashout refinance, you make use of the rental property equity, where equity is the portion that you own, depending on how much you have already paid on the mortgage. Cashout refinance is simply taking a loan against the value of your rental property.
Typically, lenders check your income, credit history, and assets. Low-doc refinance programs let you bypass the whole verification process called “streamlined refinance.” The term is such because the requirements are more straightforward and faster.
In a streamlined refinance, lenders waive the home appraisal, income verification, and credit score. Homeowners can avail the streamlined refinance loan if they are backed up by the federal government, such as VA loans, USDA loans, and FHA loans.
You can choose to work with the same mortgage lender unless you find someone who can give a better deal. There are several lenders to choose from so take your time to compare different offers.
You will want to shop around and compare quotes from various mortgage lenders. Shopping around and comparing rates can help you save money.
Once you have narrowed down the offers, select the one that gives you the best advantage.
The internet is still the best place to find the best one for your taste. While looking, you can also read the reviews by other clients because this says a lot about the lender.
Blake Mortgage is a mortgage broker based in Arizona. Highly professional and work closely with clients. If you are looking to finance the rental properties or refinance your mortgage, you will get the support you need and help you through the entire process.
Being in the industry for quite a long time, Blake Mortgage has developed an extensive network that can handle any transaction, no matter how tricky it can be. A company that has a personalized approach when handling clients.
With the low-interest rates today, more people are looking to buy investment properties and refinance their mortgages. Whether it is your first time or your nth purchase of real property, you want a mortgage broker whom you can trust.
The start of November has shown plenty of homeowners refinancing their homes. It’s a good sign for other homeowners who are still planning about whether they should get their houses refinanced. Mortgage refinancing has seen a considerable increase in applications since late July. The main reason refinance loans are rebounding this month is the lower rates.
Are you wondering if today is the right time to refinance your home?
Before we start showing you the numbers, some homeowners may not know what refinancing means. So, let’s start first with the definition of refinancing.
Today is the right time to refinance is getting a new mortgage contract that takes the place of the original mortgage. Getting a refinancing means a homeowner is trying to make advantageous changes to their interest rate, schedule of payments, and other terms in their contract.
Homeowners often opt for a refinance when there is a considerable change in interest rates in the market. That way, borrowers get to save money from their debt payments due to the new contract.
Often, homeowners get refinancing to change their mortgage terms and make them more favorable for them in their situation. Long-term mortgages span for several years, and within those years, some shifts in the economic condition may occur. Also, plenty of changes may happen within those years in the borrower’s circumstances.
Some of the most common reasons homeowners apply for refinancing are to lower their fixed interest rates, change the length of the mortgage, or change their loans from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
Borrowers may also experience a change in their financial situation during their loan duration. For instance, you may apply for refinancing if your credit score has improved. Also, if your finances have significantly improved, you can pay off your loans and merge them all into one loan with low interest.
The usual motivator for homeowners to refinance is the lower interest rates in the market. However, many factors influence the interest rates of mortgages and loans. Some of the notable factors include market competition, the economic cycle, and the national monetary policy.
You may be restarting the repayment clock with this new loan. Consider you’ve made five years of payments on your current 30-year mortgage. That means you have 25 years left to pay it off. If you refinance to a new 30-year loan, you’ll start over and have 25 more years to repay it. You’ll pay off There are several reasons to refinance your mortgage, even when interest rates rise. First, the average American homeowner could save over $260 per month by refinancing their current mortgage. If you have an adjustable-rate mortgage (ARM), now is the time to lock in a low fixed rate before it starts adjusting higher.
Perhaps you’re in a better financial position today than you were when you took out your prior mortgage. Refinancing may enable you to obtain a lower interest rate.
According to the Mortgage Banking Association (MBA), refinancing’s Market Composite Index gained 5.5%, 5.0% unadjusted, and on a seasonally adjusted basis. The reason behind it is the considerable number of applications for refinancing, and November has seen the most increase so far.
Since September 17, the Refinance Index has gone higher for the first time. It rose 7.0% as compared to the previous week. However, it was 28% lower than the same week a year ago.
The mortgage activity of refinancing based on total applications rose to 63.5%, compared to 61.9% during the week of October 29. It’s also notable that the average loan balance was the highest in a month in refinance applications.
The interest-rate environment changes right now are perfect for homeowners wanting to refinance their homes. Refinancing is your chance to improve your loan terms and potentially save money. So please Book an appointment with us now or call us at 480-699-1055.
Are you an active service member, veteran, or surviving spouse? Do you know that you can obtain a zero-down payment VA home loan? This can be the best financing option to purchase a home or even refinance your home. Your dream to become a homeowner can be realized sooner than later. However, there are some setbacks you need to know before making a decision.
A VA loan is a mortgage offered through the U.S Department of Veteran Affairs. It is designed to help active-duty military personnel, veterans, and service members become homeowners at an affordable cost. This type of loan has generous terms such as no down payment, requires no mortgage insurance, have lenient rules for qualifying, to name a few benefits.
Although the Department of Veteran Affairs offers VA loans, the government does not necessarily design the loans. The government, through the department, determines who qualifies for the VA loans and which lenders issue the loans. The department can either back you up in the loan or have the loan given to you directly. These loans come in a different form from which you can choose.
To meet the eligibility requirements, you must have done your service time.
Find more at va.gov.
However, there are some setbacks you need to be aware of. Let’s discuss below; read on to find out more.
Although VA loans have very generous terms, you have to pay funding at closing. This fee is charged to reduce the weight of U.S. taxpayers. However, the following are exempt;
When you take your first VA loan and make zero down payment, the funding fee is 2.3 percent of the amount you are borrowing. With subsequent borrowing, the VA funding fee increases.
Here are some setbacks that VA’s tend to encounter along the way:
Another setback of VA loans is that they are limited to primary residences as opposed to conventional loans. You cannot purchase a second home, an investment, rental property, or a vacation home; this is a significant disadvantage because you cannot purchase any property that brings you money. You are buying a liability instead of an asset in an absolute sense. Therefore, a VA loan is not the solution if you want to buy an investment property. In this regard, a VA loan encounters a loan setback.
A VA appraisal comes with red tape around it. Because VA appraisals require additional information not needed by other loan-type appraisals. The VA is more extensive than any other appraisal. Some VA Loan Minimum Property Requirements(MPRs) include:
Although the intensity of the VA appraisal can keep potential borrowers from owning defective properties, the closing will take ages. Due to the bureaucracy of the government, the appraisers are slow and end up undervaluing homes.
Many sellers find VA loans unattractive; this makes them uncomfortable, and they end up resisting VA home loan deals. Some of the reasons are; VA appraisals- as discussed above, which impose minimum property requirements that require a home to meet the agency guidelines for safety and livability. They have extensive appraisals such that they undervalue homes. Which makes sellers resist most of them. In some markets, sellers must pay closing costs if veterans buy a property with zero down payment. Most sellers frown at such offers. The closing process of the VA loan may be extended due to delays in paperworks. Sellers want fast business, and this is not pleasing to them at all.
Ironic because buying a home with little or no money is one of the most significant advantages of a VA loan. However, this can also be a disadvantage. A person will have a property that is 100% financed once they move into the home. When the VA funding fee is added to the loan amount, there is a negative equity position from the beginning. If the property’s value increases in the market, this becomes a temporary problem. But, if the market is either flat or declining, there’s a severe problem. Needing to sell your home and have no equity, forced to write a check at the closing table to cover any closing costs associated with the sale; not a typical case but a potential disadvantage you need to be aware of.
Finally, even though you’re eligible for a VA loan, it may not be your best financing option to purchase a home. Depending on your financial position, you might want to weigh your options and choose the best option for yourself. If your best choice is a VA loan, then be sure to do your due diligence and find a reputable VA lender. The lender you choose will determine how your loan application process will go. Finding a company that does a substantial amount of VA business is the safest way to take. Most lenders have no experience with VA loans and may end up giving you unnecessary headaches.
Building a home is an exciting and complicated process. It’s exciting because you get a chance to tailor your home according to your lifestyle, budget, and family. It gets tricky when the costs add up fast and you don’t have the cash on hand to pay; this is when a construction loan comes in handy. When applying for a construction loan, there are some things you need to avoid. Read on to find out more.
A home construction loan is a short-term, higher interest rate loan that provides the money required to build a residential property. The loan duration is usually one year. The property is built, and a certificate of occupancy is issued during that period. The funds are allocated in stages as the work progresses.
As mentioned above, construction loans have variable rates which move up and down with the prime rate. Construction loans have higher rates than traditional loans; this can be attributed to the fact that your home acts as the collateral with conventional loans, but construction loans have that privilege. You provide the lender with a detailed plan and a realistic budget. It helps them plan on how they are going to issue the funds.
Some of the things you need to avoid during this kind of loan are explained below.
An early start may seem reasonable because you have a timeline – you want to get started with the project right ahead. However, this can be a risky undertaking. An early start can significantly delay the loan closing. The title agency will request an early start coverage if the construction has already started. There is no guarantee that this will be granted, resulting in no title insurance coverage. In this case, your loan may not be even be closed.
It would be wise to stick with your current loan during the construction period. Never add another loan or credit line, or you will get yourself in trouble; this can be detrimental to the project because it increases the total cost of borrowing and the level of debt on a project, leading to difficulties in repayment.
It gets more difficult when you are doing the building yourself. Lenders are hesitant to lend money to owner-builders. They are afraid that non-professionals have more chances of delays and problems. Unless you are a professional contractor, maybe they would.
Many people think that it is a good idea to be changing jobs during the construction process. It is dependent on your employment. Any sudden changes are never a good idea.
When you have other existing loans during the construction period, it is best to pay on time. Any past due can lead you to late fees or penalties.
It is crucial to stay close to your lender during the construction period and inform them if anything does not go as planned. So before starting your loan, make sure you know what to avoid. The more you are knowledgeable, the lesser headaches you will encounter.
As investment values increase in many areas, savvy real estate investors recognize the opportunity to tap into their property’s equity. A cash out on investment property is one of the best opportunities to make the most out of this situation. There are countless uses for those funds — home improvement projects, adding new property, or managing other financial needs unrelated to the property itself. Depending on the amount of equity, you could see a significant amount of financial improvement, and especially with a cash out refinance with no income documentation.
A cash out refinance allows the property owner to secure a new mortgage on the property for more than they currently owe on it. They then receive the difference (new mortgage amount minus what is owed and closing costs). Using a real estate investment, it’s possible to capture funds during these high home value times to use to advance your portfolio or simply lock in low rates for other needs.
Many property owners, including investors, have equity in their real estate that they don’t tap into and use as readily as they should. Yet, they may be paying a much higher interest rate on unsecured debt or battling financial difficulties in managing their investment business. Interest rates on real estate are competitive — and the same goes for cash out refinancing. Taking advantage of those funds now may help to make your financial future a bit stronger.
If it is time to improve your cash reserves through a cash out refinance loan, here’s what you can expect from us:
• Get up to 75 percent loan-to-value on your home – no reserves required
• You may not need any employment or income documentation to secure these funds.
• Boost investor cash flow to use as you need.
• Borrow up to $2 million
• 30-year fixed loan (no bothersome adjustable-rate mortgages to worry about)
You can use this type of loan on most types of real estate, making it more accessible to many real estate investors. That includes:
• Single-family residences
• 2-to-4-unit condos, townhomes, and non-warrantable condos
• Non-owner-occupied properties only (cannot be used on primary residences)
There are a few other things to know about a cash out refinance on investment property. For example, to qualify on cash flow, you’ll need 12 months reserves for negative cash flow. The cash out can be used to cover reserves.
Expand your horizons when you consider all the potential options for using these loans to meet your needs. Many times, property owners use these funds to put value back into their investment properties. You can do this in many ways, including home improvements. Get the property in better shape so you can attract a higher-paying tenant. It may be possible to use these funds to expand the existing property’s footprint through an addition. That may allow investors to increase their rental opportunities.
Other investors use these funds to invest in another property. Buying another rental property with a low-interest rate and low monthly payment. Therefore, using these funds simply makes sense for many people. It is one of the best ways to expand a real estate portfolio in current conditions.
Pay down personal debt with these loans. While mortgage payments may continue for a bit longer on the property. At the same time, you may be able to comprehensively pay down your debt outside of that loan. Therefore, it may save you money since interest rates tend to be much lower on a cash out refi than personal, unsecured debt.
Use the funds in any way that fits your needs right now. Tuck them away for the future. Know that a cash out refinance loan is one of the most effective ways of utilizing the value of your property.
For many small businesses, obtaining a business loan can be quite difficult. As many small business owners don’t have the collateral to pledge for a traditional secured loan. Therefore, unsecured business purpose loans are often a better option. While unsecured business loans are often tougher to qualify for. It can carry higher interest rates than secured loans. They ultimately hold less risk for borrowers.
Below, you’ll learn more about the:
Essentially, unsecured business loans work in a similar manner as traditional secured business loans. However, the main difference is that borrowers are not required to offer a form of collateral with an unsecured business loan. But, as with any loan, there are pros and cons to securing this type of funding for your small business financing needs.
Now that you know what an unsecured business loan is and its pros and cons, let’s look at how unsecured business loans work.
Unsecured business finance options work like traditional types of secured debt financing. However, with unsecured business loans, borrowers are not required to provide lenders with any form of collateral. Overall, instead of looking at the borrower’s collateral, lenders look at the borrower’s creditworthiness. Generally, you must have a minimum credit score of 680 for a bank to consider you for an unsecured business loan. Lenders also look at the loan amount and the business’s cash flow to determine whether the business is a good risk in terms of providing a loan.
To obtain an unsecured business loan, you will need to follow certain steps to make sure you are even eligible to apply. The following includes some of the criteria you will need to meet in order to qualify for an unsecured loan from a bank.
Once you have determined if you meet the criteria of the three elements mentioned above, you can then start the process of obtaining an unsecured business loan from the financial institution of your choice. It is also beneficial to create a detailed business plan before seeking an unsecured business loan from a bank or other financial institution.
In your business plan, be sure to include:
When applying for an unsecured business loan, keep in mind that the most likely place to obtain this type of loan is from an alternative lender rather than a traditional bank. Popular alternative lenders are financial technology firms that use automated technology to determine a small business’s credit history and overall creditworthiness. Frequently, alternative lenders end up charging borrowers more than traditional banks or credit unions. These are all elements to consider when looking to obtain an unsecured business loan from any type of financial institution, including the Small Business Administration’s (SBA) small business loans.
Hopefully, through this overview on unsecured business loans, you have been able to see some of the benefits this type of loan can provide to you and your small business operation. If you’re looking to start the process of obtaining an unsecured business loan, then Blake Mortgage is here to help.
The dedicated team at Blake Mortgage works diligently to connect you with a wide variety of financial institutions that are willing to lend money to small business owners seeking loans. Whether you’re worried about qualifying for a loan or simply getting the best rate, we can help.
Are you ready to discover how Blake Mortgage can help you obtain a business loan today? If so, give us a call or make an appointment to learn more.
The loan’s interest rate should be among the essential things to think about while looking for a mortgage loan to finance your home purchase. In terms of choices, you have two types of mortgages to choose from: those with fixed interest rates and those with variable interest rates. These two types vary. One has a constant interest rate for its whole life, while the other fluctuates over time.
You will have to weigh the benefits and drawbacks of each loan kind before deciding which one is right for you. Let’s start with the basics by defining the different types of loans:
There are a few significant differences between fixed-rate loans and ARMs. Let’s find out more.
The interest rate on your mortgage can never go lower than the set margin in your loan documents. Whereas if the margin is set at 3%, it is applied to the existing index number that day of your rate adjustments.
Rate caps on ARMs set a restriction on how much your interest rate may increase or fall in a given period and throughout the life of the mortgage. If your loan reaches its limit, it may not rise or fall in lockstep with the markets.
After your fixed-rate term ends, an initial cap is the highest percentage rise or reduction your rate may be in a single month. The most effective interest rate may vary between one adjustment period and is limited by a periodic cap.
A lifetime cap restricts the amount by which your interest rate may rise or fall from the introductory offer throughout your loan. Lenders shall represent initial, periodic, and lifetime ARM caps as a sequence of three integers distinguished by forwarding slashes. These numbers are what you refer to as your “cap structure.” So, an ARM with a 2/1/5 cap structure implies loan interest rates that may rise or decrease by up to 2% on your first adjustments up to 1% each subsequent adjustment. Finally, your interest rate cannot increase or fall by more than 5% up or down the actual rate throughout the loan.
The interest rates on adjustable-rate mortgages (ARMs) are lower than those on fixed-rate mortgages, at least in the short term. Fixed-rate loans have a higher rate of interest because financial institutions must anticipate interest fluctuations over time. Lenders may be more indulgent with ARMs since their rates adjust to the changing market regarding initial loan fees.
To determine your eligibility for a loan, your lenders will compare how much money your family makes each month to how much money you spend. Such a ratio is known as your debt-to-income (DTI) ratio, and it has a significant impact on your ability to get a loan. An ARM may be more accessible if your debt-to-income ratio is high compared to a fixed-rate loan.
There are a few similarities between adjustable-rate mortgages and fixed-rate mortgages that you may not expect.
Both adjustable-rate mortgages and fixed-rate loans have the exact maximum loan term durations, regardless of their structure. The term duration refers to the number of years it will take you to repay the loan. For instance, both ARMs and fixed-rate loans typically have a 30-year duration.
Lenders look at something other than your income when determining whether to grant you an adjustable-rate mortgage (ARM) or a fixed-rate mortgage (FRM). Your credit rating has a significant effect on the capacity to get a loan of any kind. Your credit score is a number that represents your credit history—a three-digit number that shows how reliable you are in repaying your loan.
Generally speaking, a credit score of 700 or above is regarded as “good credit.” Higher credit scores increase your chances of getting an adjustable-rate mortgage (ARM) or a fixed-rate mortgage (FRM).
Here are a few advantages of going with a fixed rate:
Right present, both fixed and adjustable rates are at historically low levels. Because low rates indicate an economic decline, they’ve been trending lower as the US has battled the coronavirus pandemic. However, many lenders are providing fixed-rate contracts at an even reduced premium than adjustable-rate mortgages.
Because interest rates are at record lows, the odds are that if you select an ARM, your rate will increase later. Rates can’t continue to be this low indefinitely. However, with a fixed interest rate, you can lock in your low rate for the duration of your mortgage, even if interest rates in the United States rise.
Certain mortgage costs, including private homeowner’s insurance and property taxes, may vary over time. However, your interest stays relatively consistent each year, making budgeting for your monthly expenditures more straightforward.
ARMs have had some significant benefits for a long time. Lenders provided lower interest rates during the introductory range in length than typically provided for fixed-rate periods, making them an excellent option for individuals who only intended to remain in their house for a few years. If interest rates in the United States decrease, you may be able to get a better deal.
However, there aren’t too many advantages to selecting an ARM.
During the introductory rate period, lenders are pricing ARMs more excellent interest rates than fixed-rate mortgages. Considering interest rates are now so low, it’s doubtful that your ARM rate would drop in the future. Whatever else, it will almost inevitably increase.
Fixed-rate mortgages are the superior bargain. However, if you’re thinking about getting an ARM, you must talk to your lender about your rates. Nevertheless, everyone’s circumstance is different; an ARM may still be a suitable match for you.
Allow Blake Mortgage to help you explore the possibilities available. You can rely on our expertise and experience to provide solutions to your financing needs—from home buying loans, refinancing deals, debt management, one-time close renovation, rehabilitation financing to bridge loan repayments, and reverse mortgages. Reach out to us and let us know how we can help.