The Mortgage
Corner
By Mike Duval, Best Mortgage, Inc.
It is the most common question I hear on a daily basis: “Are interest rates headed up again?” My answer is always the same “Maybe.” While mortgage rates have fluctuated over the past months, they are still near a 30-year low and many people have taken advantage of this and refinanced. Mortgage decisions, like any other major financial decisions, should be well planned and made utilizing as much information as possible. In this column, I will address some of the frequently asked questions about mortgages and give you some useful information that can help make the process less confusing.
Question: When is the best time to refinance?
Answer: That depends on several factors, including your outstanding balance, your current interest rate and any outstanding debt that you may have. The rule of thumb is, if you can lower your mortgage rate by .75% to 1%, the savings you can reap will more than offset the costs associated with refinancing your home. Even if you currently have a low rate on your mortgage, it may save you money to refinance and pay off your high interest credit cards and home equity loans.
Question: What is PMI?
Answer: Private Mortgage Insurance (PMI) is mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent. The Borrower, on a monthly or annual basis, pays the premium for this insurance. Further, this policy is required to be in place until the LTV is below 80 percent. Your Mortgage Advisor can assist you in determining the value of your home and make a recommendation regarding PMI.
Question: I saw that I could out 10% down and NOT pay PMI. Is this
really an option?
Answer: Yes. There are “NO PMI” programs available, including 100%
financing. However, it makes sense to speak with a Mortgage Advisor to get
the specifics on a program that is right for you. Often, avoiding PMI is not
the least expensive route. Your Mortgage Advisor can assist you in selecting
the right mortgage choice for you.
Question: What is the difference between a “pre-qualification” and a
“pre-approval?”
Answer: A “pre-qualification” is when you provide information
regarding your income and credit history to your Mortgage Advisor. He or she
then makes a determination on the amount of a loan that you qualify for,
based upon what your income and existing debts are. A “pre-approval” means
that you have made a formal application for a specified loan amount and the
Lender has given you a firm commitment to make that loan. Pre-approvals
usually have an expiration date and are conditioned upon no significant
material changes in the Borrower’s financial position. Current market
conditions have made buying a home a competitive proposition, so an offer
made by a pre-approved Borrower with no financing contingencies will carry
more weight than an offer made by a Borrower who has yet to have made a
formal application for a mortgage. Your Mortgage Advisor can assist you in
determining the amount of a loan that you would qualify for and provide a
pre-approval that will help you purchase the home of your dreams!
