Independence Mortgage Group
318 Bear Hill Road, Suite #11
Waltham, MA 02451
- How do I know how much house I can afford?
- Generally speaking, you can purchase a home with a value of two or three times your annual household income. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. You may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value. Give us a call, and we can help you determine exactly how much you can afford.
- What is the difference between a fixed-rate loan and an adjustable-rate loan?
- With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change. Here are some advantages and disadvantages for each:
Advantages - Fixed
Since you know what your payment will be for the life of the loan, you can budget more easily.
No possibility of an interest rate change making your mortgage payment suddenly unaffordable.
No anxiety over interest rate fluctuations.
Disadvantages - Fixed
More income needed to qualify because of higher intial mortgage rate.
If interest rates decrease appreciably, it will be necessary to refinance to get a lower payment.
Advantages - ARM
Lower initial interest rate and therefore lower monthly payment.
If interest rates decline, your payment will also decline.
Easier to qualify for due to lower intial interest rate and payment amount.
Disadvantages - ARM
If interest rate increases, your payment will also increase.
A large increase in interest rates - and payment - could make your house unaffordable.
- What is the difference between the interest rate and the A.P.R.?
- You'll see an interest rate and an Annual Percentage Rate (A.P.R.) for each mortgage loan you see advertised. The easy answer to "why" is that federal law requires the lender to tell you both.
The A.P.R. is a tool for comparing different loans, which will include different interest rates but also different points and other terms. The A.P.R. is designed to represent the "true cost of a loan" to the borrower, expressed in the form of a yearly rate. This way, lenders can't "hide" fees and upfront costs behind low advertised rates.
While it's designed to make it easier to compare loans, it's sometimes confusing because the A.P.R. includes some, but not all, of the various fees and insurance premiums that accompany a mortgage. And since the federal law that requires lenders to disclose the A.P.R. does not clearly define what goes into the calculation, A.P.R.s can vary from lender to lender and loan to loan.
The A.P.R. on a loan tied to a market index, like a 5/1 ARM, assumes the market index will never change. But ARMs were invented because the market index changes and makes fixed rate loans cheaper or more expensive to make - that's why they're variable rate in the first placed!
So, A.P.R.s are at best inexact. The lesson is, that A.P.R. can be a guide, but you need a mortgage professional to help you find the truly best loan for you.
Note when you're browsing for loan terms that the A.P.R. will not tell you about balloon payments or prepayment penalties, or how long your rate is locked. Also, you'll see that A.P.R.s on 15-year loans will carry a higher relative rate due to the fact that points are amortized over a shorter period of time.
Frequently Asked Questions
© Independence Mortgage Group 2013
MA Licensed Mortgage Broker
MA - MB3163
NMLS - 3163
NH - 14144-MBR
Licensed by the New Hampshire Banking Department