How Are Interest Rates Calculated on an ARM Loan?

As you probably know, the "ARM" in ARM loan stands for adjustable rate mortgage. This means that your interest rate is subject to change, at least once a year. Most ARM loans will have an introductory fixed rate period at first (normally 3, 5, 7, or 10 years) but will then be adjusted, either up or down, at a set interval for the remainder of the loan.

So, how does your lender determine your adjusted rate? In order to answer this question, you need to understand a little bit about the structure of an ARM loan.

ARM loans have four primary components: index, margin, rate caps and initial rate period. We've already mentioned the initial rate period (where the rate remains set for the first few years of the loan), but when that period is up, your lender will adjust your rate by adding the margin to the index at that time.

The margin is a fixed number that will be disclosed to you at the time of loan application and again at closing. Margins vary from lender to lender, so it's a good idea to shop around for a low margin. The index is a fluctuating number that moves up or down. As it does so, your interest rate will be adjusted accordingly. The a multiple indexes used by mortgage companies.

The rate cap structure protects the borrower from drastic upswings in interest rates. Your rate cap will vary, depending on the type of ARM loan you have.

Adjustable rate mortgages can be a smart option for some buyers, but they won't be the best choice for everyone. It's a good idea to weigh all the options before committing to a particular loan program.

Related Posts and Resources:
Reasons to Consider an Adjustable Rate Mortgage
Freddie Mac's HomeSteps Program
What is Condotel Financing?

February Existing Homes Sales Down, but Remain Ahead of Last Year

According to a recent press release by the National Association of Realtors®, the number of existing home sales dipped in February, but remain higher than February of 2011.

"Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, slipped 0.9 percent to a seasonally adjusted annual rate of 4.59 million in February from an upwardly revised 4.63 million in January, but are 8.8 percent higher than the 4.22 million-unit level in February 2011," the release stated.

NAR chief economist, Lawrence Yun, anticipates a higher demand in both homeownership and rental space this year, due to "recod high consumer buying power and sustained job gains giving home buyers the confidence they need to get into the market."

Here are a few more key points outlined in the data...

• Total housing inventory at the end of February rose 4.3% to 2.43 million existing homes available for sale, representing a 6.4-month supply at the current sales pace. 
• All cash sales rose to 33% of transactions in February from 31% in January. 
• The median sale prices for the Northeast, Midwest, South and West were $225,800, $120,500, $138,100 and $195,300, respectively. 

 Read the full article here: http://www.realtor.org/press_room/news_releases/2012/03/ehs_feb

What is Home Steps and How to Sign Up for Property Listings in an Area

HomeSteps is Freddie Mac's real estate sales unit that sells properties that are owned by the company. On the Home Steps web site, you can search for property listings and register to receive weekly emails of new homes that come on the market in designated area. This HomeSteps HomeBase program allows you to sign up for listing in up to 15 zip codes as well as search for real estate professionals who are involved in the program.

Properties sold through the HomePath program come with a limited two year home warranty and consumers have the opportunity to receive up to 30% off on new appliances. Real estate investors can also use the site to search for online and live real estate auctions as well as bulk sales opportunities.

For more information on HomeSteps, visit their web site here >

Other related posts and resources:
When to Start Looking at Real Estate Listings
Obama's Mortgage Refinancing Plan
Financing Property Renovations

Log Home Financing Options - Where to Go for Information on Log Home Mortgages

When I was a loan officer back in the day I would cringe whenever a customer told me their property was a log home. It's not that log home financing is hard, it's just a matter of knowing where to place the loans. The biggest obstacle with trying to go the Fannie Mae or Freddie Mac route is finding comparable sales in the window of time acceptable within their guidelines. If you live in the mountains surrounding Gatlinburg, TN an appraiser may be able to find comps without an issue. That may not hold true if you are looking to purchase or refinance a log home in Long Island.

The other option is trying to find a bank who will portfolio the loan. As mentioned in the previous post on condotels, many banks will hold a number of loans in their own portfolio. This means that they will keep and service the loans themselves and not sell them off into the secondary market. These lenders may have more flexibility in determining whether or not they think that log home loan is a wise investment. If you are a doctor who has been in practice for five years, making $250K a year and you are going to put down 50% on a $300,000 home, you're likely to some consideration. Under the same scenario, it might not matter to a mortgage company who has to sell the loan to Fannie or Freddie if they cannot find the comparable sales.

Related Posts and Resources:
National Association of Home Builders - Log Home Council
Log Home Builders Association
Farm Credit Services of America
Log Home Mortgages - Rate information on BurlingtonMortgage.biz

15 Year Mortgage Rates Hit All-Time Low

Freddie Mac reported yesterday that the 15 year fixed mortgage rate average fell to its all-time low last week. It's hard to believe that rates have continued to remain so low for so long. The 15 year average came in at 3.13% (.8 pts), down .04% from the previous week. The 30 year average also shifted lower going from 3.90% to 3.88% (.8 pts). Frank Nothaft of Freddie Mac noted that the Corelogic National Home Price Index move down for a sixth consecutive month to its lowest level in January 2003. That's good news for home buyers looking for great deals at unbelievably low interest rates.

Below is a snapshot of current mortgage rates pulled from ForTheBestRate.com today. We used Louisiana mortgage rates for the survey. Please visit www.forthebestrate.com for the quoting criteria used in the survey and to contact the various lenders and brokers. Rates and fees are subject to change without notice.

30 Year Fixed Mortgage Interest Rates
Quicken Loans: 4.125% Rate, 1 pt, $2057 Fees in APR, 4.275% APR
Amerisave: 3.875% Rate, .576 pts, $1995 Fees in APR, 4.006% APR
LendingTree Loans: 4.000% Rate, .625 pts, $1500 Fees in APR, 4.115% APR
United Pacific Mortgage: 3.625% Rate, 1 pt, $950 Fees in APR, 3.746% APR

15 Year Fixed Mortgage Interest Rates
Quicken Loans: 3.375% Rate, 1 pt, $1557Fees in APR, 3.636% APR
Amerisave: 2.875% Rate, .742 pts, $1995 Fees in APR, 3.127% APR
LendingTree Loans: 3.250% Rate, .750 pts, $1500 Fees in APR, 3.469% APR
United Pacific Mortgage: 2.875% Rate, 1 pt, $950 Fees in APR, 3.088% APR

Other Related Posts and Resources:
Previous Mortgage Rate Snapshot
New Orleans Mortgage Rates

Mortgage Rates in the Lone Star State - TX Snapshot

Mortgage rates headed lower this past week according to Freddie Mac's weekly market survey. The 30 year fixed rate average fell from 3.95% down to 3.90% (.8 pts) and the 15 year fixed rate average moved from 3.19% to 3.17% (.8 pts). According to the survey's results, the Southwestern US showed averages slightly higher than the national figures with the 30 year average at 3.92% and the 15 year average at 3.22%.

Frank Nothaft, VP and Chief Economist with Freddie Mac, noted that "Fixed mortgage rates bottomed out in January and February of this year which is helping spur the housing market. For instance, pending existing home sales rose in January to its strongest pace since April 2010 and sales figures for December saw upward revisions. In addition, the Federal Reserve noted in its February 29th regional economic review that residential real estate activity increased modestly in most of its Districts over the course of January and early February, with several reports of increased home sales."

We spoke with Kelly Decker, a McKinney mortgage banker with First United Bank Mortgage and he has seen both refinance and purchase activity continue to remain strong. "We are still as busy as we've been over the previous quarter. It's hard not to be in this rate environment."

You can check current Texas mortgage rates online using the mortgage rate tables on ForTheBestRate.com.