Mortgage Annual Percentage Rate

Are you in the market to refinance your existing mortgage loan? Do you find terms like APR, Mortgage Rate, and Points confusing and misleading?

You’re not alone…most homeowners never fully understand what the Annual Percentage Rate is or how points affect their mortgage rate and closing costs. Here are several tips to help demystify mortgage loans and save you thousands of dollars when refinancing your home loan.

Annual Percentage Rate

You’ll see it listed as APR for short…but what is Annual Percentage Rate really? The Truth in Lending Act of 1974 requires lenders to disclose the costs of a loan to allow homeowners to compare loan offers. This law was supposed to make it easy to make apples to apples comparisons of any mortgage offer you’re considering; however, the problem you’ll find when comparing one apple to another is that your lender could just as easily hand you a mango that they’ve designated an apple. Here’s why.

Annual Percentage Rate is an expression of the total costs you’ll pay every year as a percentage of the loan amount. The law requires mortgage lenders to tell you what the APR is; however, there is no standard for lenders to calculate the APR or requirements that all fees and charges be listed. This means that every lender you encounter when refinancing your mortgage will have a different way of calculating the APR and may only include the lenders fees, not your broker’s origination fees and markup.

APR is a Marketing Tool

These days the Annual Percentage Rate is largely a marketing tool designed to get you into the office or on the phone to generate a lead. Most of the numbers you see are purely fictional and should not be relied on when choosing a mortgage loan. How should you compare loan offers? Shopping for a mortgage correctly isn’t a matter of comparing loan offers like you would compare a bottle of Ketchup at the grocery store. Instead of trying to find the right lender or loan, concentrate your efforts on finding the right person to arrange you mortgage and the rest will fall into place.

How to Find the Right Mortgage Broker

Finding the right mortgage broker when refinancing your home loan is easier than you think. If you look in the phone book you’ll find a lot of fancy mortgage brokers with posh offices and company hummers decked out with their company logos. Think these folks are the right people to originate your loan? Think again. Posh offices, expensive sales staff, receptionists, cappuccino makers, and company hummers cost a lot of money. These mortgage brokers have huge overhead costs to keep their businesses afloat and have minimum targets they need to bring in on each loan.

This means because of their overhead costs these mortgage brokers will never be willing or able to negotiate their origination fees or Yield Spread Premium on your loan. It’s your money but these broker’s think they’re entitled to it…someone’s gotta make that hummer payment right?

How do you find the right mortgage broker to refinance your home loan? Look for a small, self-employed mortgage broker that has been in the business for ten years or longer. Does this broker work out of their home? Even better…less overhead means these mortgage brokers will be willing and able to negotiate for your business.

You can learn more about finding the right broker to refinance your home loan without paying commission based markup of your mortgage rate or junk fees by registering for my Underground Mortgage Videos available on this website.

Mortgage Refinancing and Your Loan to Value Ratio (LTV)

mortgage rates Mortgage Refinancing and Your Loan to Value Ratio (LTV)If you are considering mortgage refinancing, understating loan-to-value ratio could make the process less painful for you. Many homeowners glaze over at the “technical terminology” associated with mortgage loans like loan-to-value ratio and yield spread premium. If you are such a homeowner here are the basics you need to know about loan-to-value when refinancing your home loan.

Why Loan-to-Value Ratio is Important

When most people talk about loan-to-value ratio when it comes to a mortgage loan they are talking about avoiding Private Mortgage Insurance (PMI). While avoiding private mortgage insurance is important and can save you hundreds of dollars every month, loan-to-value ratios influence other aspects of your home loan including mortgage rate, payment amount, and loan approval.

Loan-to-Value Ratio Definition

Simply put your loan to value is the ratio between your mortgage amount and the value of your home. Suppose for instance you have a $200,000 home with a $100,000 mortgage loan. Your loan-to-value ratio or LTV in this example is 50 percent.

Different types of mortgage loans and lenders have different requirements for LTV ratios. Your primary residence for example can have an LTV as high as 96.5 percent and still qualify for an FHA mortgage loan. Conventional mortgage loan requirements range anywhere from 95 – 97 percent LTV. Thinking about a VA or Rural Housing loan? These loans can go as high as 100 percent LTV.

If avoiding Private Mortgage Insurance (PMI) is your goal you will need to have the loan-to-value ratio below 80%. Private Mortgage Insurance can add hundreds of dollars to your monthly payment amount and does nothing to protect the homeowner; this insurance simply protects the lender from certain types of losses if you default on your mortgage loan. Having a lower LTV ratio can also affect the mortgage rate you get when refinancing your home. Generally the lower your LTV the better your mortgage rate will be which in turn gives you the lowest monthly payment amount.

Having a favorable loan-to-value ratio could mean the difference between getting your loan approved or denied if you are a homeowner with less than perfect credit. Having a low loan-to-value ratio reduces the risk for the mortgage lender, making you more loan worthy. You can learn more about lowering your mortgage rate and payment amount when refinancing while avoiding lender junk fees by registering for the free mortgage videos available on this website.

Balloon Mortgage Risks

mortgage bubble Balloon Mortgage RisksBalloon mortgages are home loans that have a payment schedule based on long term repayment but have the entire balance due after a shorter period of time. As an example a seven year balloon mortgage would have payments based on a 30 year term length but the entire remaining balance will be due after seven years.

Taking out a balloon mortgage is a common way of getting lower mortgage rates and monthly payments than you could with a traditional 30 year fixed rate loan. Similar to an Adjustable Rate Mortgage, balloon mortgages shift much of the risk from the lender to you in exchange for a lower mortgage rate. The problem is that if you are unable to pay off the entire loan balance when the balloon payment is due or refinance you risk losing your home.

The risk associated with balloon loans and Adjustable Rate Mortgages is referred to as mortgage rate risk. This is the risk to the mortgage lender when giving you a rate without knowing what mortgage rates will be doing down the road. Lenders lose out on potential income by locking in your mortgage rate…Adjustable Rate Mortgages circumvent this risk by adjusting your payment amount should mortgage rates go up. Balloon payments reduce risk to the lender by requiring the loan be paid back in short periods of five to seven years. Because the balance of the loan is due with the balloon payment the lender can refinance at a higher mortgage rate.

If you are considering a mortgage with a balloon payment to get a lower interest rate you should consider how future mortgage rate increases could affect your monthly payments and your budget. Because most of your payment with balloon mortgage loans is applied to interest you will be building very little equity in your home; balloon mortgages should only be considered as a stopgap measure until more reasonable financing can be secured.

Many homeowners get themselves into trouble with declining home values when they find themselves upside down, owing more than their home is worth when the balloon payment is due. If you are upside down and owe a balloon payment it will be extremely difficult if not impossible to refinance or sell your home. Homeowners in this situation find themselves facing foreclosure…this is the risk you face when using a balloon mortgage loan.

You can learn more about your mortgage refinancing options including pitfalls to avoid like balloon mortgages and junk fees by registering for the free mortgage videos on this web site.

Mortgage Amortization Definition

Your home loan’s amortization schedule is the breakdown of repayment necessary to pay off your mortgage loan. There are two parts to your mortgage payment: loan principle that pays down your balance and loan interest. Your amortization schedule shows you how much of your payment is applied to the loan principle and how much is paid to interest over time.

Mortgage loans are front loaded with interest. This means in the beginning of your loan almost of all your payment is applied to mortgage with very little paying down the balance. At the end of your repayment schedule more of the payment is applied to principle than interest.

One of the disadvantages you should be aware of when refinancing your mortgage is that you will be starting your amortization schedule from the beginning every time you refinance. Refinancing slows the growth of equity in your home because most of your mortgage payments will be applied to loan interest. Still, mortgage refinancing can be advantageous if you are reducing your payment amount with a lower mortgage rate.

Refinancing Mortgage Rates Defined

home mortgage points Refinancing Mortgage Rates DefinedIf you are refinancing your home loan, the mortgage rate you receive is one of the most important aspect of your loan. One of the most important aspects of your refinancing mortgage rates is whether or not the person arranging your loan is generating a commission for them self by marking up your mortgage rate. Here are the basics you need to know about mortgage rates when refinancing your mortgage to avoid paying too much.

Mortgage Rates, also referred to as the “Note Rate” is an amount of interest paid to the lender expressed as a percentage of the loan amount

Mortgage rates are the most familiar aspect of refinancing; however, the overwhelming majority of homeowners do not understand how mortgage rates work. In fact, this is so bad in the United States that the Secretary of Housing and Urban Development recently announced that American homeowners will overpay nearly sixteen billion dollars this year alone!

Because your mortgage rate is the means to a better commission by the person arranging the loan most people never get the mortgage rate they deserve. You can refinance with mortgage rates you deserve by investing a little time doing your homework and learning about something called Yield Spread Premium.

Yield Spread Premium and Your Mortgage Rates

The commission paid by a wholesale lender to the person arranging your mortgage is known as Yield Spread Premium. This fee is paid in addition to any origination fees you are already paying, probably even overpaying, for this person’s services in arranging your home loan.

Yield Spread Premium is paid at one percent of your loan amount for every quarter percent your refinancing mortgage rate is marked up. The problem with this markup is that it artificially inflates your monthly payment. To learn more about avoiding this unnecessary inflation of your mortgage payment and other junk fees when refinancing, register for the free videos available on this web site.