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Home Mortgages

Sponsor: RF Home Mortgage

MORTGAGE FAQ's

What is a mortgage?

Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.

What is a Loan-To-Value (LTV) ratio? How does it determine the size of the loan?

The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: with a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay $2,500 as a down payment.
The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV ratio, the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require a mortgage insurance policy.

What types of loans are available and what are the advantages of each?

Fixed Rate Mortgages: Payments remain the same for the life of the loan

Types: 15-year & 30-year

Advantages:

Predictable- Housing cost remains unaffected by interest rate changes and inflation Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits

Balloon Mortgage- Offers very low rates for an initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)

Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan

ARMS (Adjustable Rate Mortgages) are linked to a specific index. Generally offer lower initial interest rates. Monthly payments can be lower. May allow borrower to qualify for a larger loan amount

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