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Determinants Of Mortgage Terms


A. MORTGAGE INTEREST RATES

When discussing mortgage interest rates, there is another way to lower the rate rather than waiting for the market to work its invisible hand. Points are payments to the lender in order to secure mortgage financing under specific terms. One point equals one percent of the loan amount so a home loan of $450,000 is $4500. The mortgage interest rate can decrease if the borrower pays some of it at the time of the loan in the form of discount points (fees). Typically, lenders express the loan related discount fees in basis points. 100 basis points equal 1 point which in turn equals 1% of the loan amount. Discount points are not necessarily beneficial. If the borrowers only plan on living in the house for a couple of years, say 1 or 2 then these discount fees will not be saving them much in terms of future interest payments. It is best to discuss the current situation with the lender to determine how long does the borrower has to live in that house for the discount points to be beneficial.

Refinance Your Mortgage Online, Mortgage Interest Rates, Property Appraisal

Mortgage interest rates fluctuate on a daily basis. From the day an application has been filed to the day the loan is approved, the rate can vary dramatically. Some borrowers "lock-in" a mortgage interest rate, which means they are guaranteed a specific rate when the mortgage is approved. It protects against the possibility of a higher mortgage interest rate. However, it also protects against a lower mortgage interest rate. Borrowers typically discuss the mortgage interest rate fluctuations with the lender to try to assess the volatility of the mortgage interest rate fluctuations. Be sure to discuss the different options available in terms of "lock-in" with your lender. In some cases, if the rate is "locked-in," the lender may be willing to give you a lower mortgage interest rate if it falls before all the mortgage documents are signed. If you decide to "lock-in" a mortgage rate, do not assume that a verbal agreement is enough. Request for it in writing so that you know exactly what to expect when all the mortgage loan documents are signed.

B. PROPERTY APPRAISAL

In addition to mortgage interest rates and fees, there is also the property appraisal that determines the terms of the mortgage loan. The lender performs a mortgage appraisal to provide an analysis of your home's or your potential home's worth in current market conditions whether you are refinancing or taking out a new mortgage. This appraisal amount is used to set the loan amount and determines the insurance amount. The insurance amount is used to protect the lender from defaulters. In the event of a mortgage loan default, this insurance issuer will be covering the lender's losses. There are private mortgage insurance issuers and issuers that are run by the government.

C. WHAT THE LENDER IS THINKING

There are several items that the lender will need to examine before determining if the loan will be approved. Typically, the lender will look at the "5 C's of Consumer Credit":

  • 1. Character – The borrower's demonstrated willingness to repay the loan. Some factors that play into this are job stability, credit history and personal characteristics. The lender will be meeting with the borrower(s), so it is best to make a good impression.

  • 2. Cash Flow – The borrower's ability to repay the loan. This basically takes two factors into consideration: income and all other financial obligations.

  • 3. Capacity – The funds available to sustain the borrower's debt. This is the net worth or liquid assets available to repay the loan such as the money in a savings account.

  • 4. Collateral – The asset used to secure the loan such as a home, a car, etc. In the case of a mortgage loan it would be a home.

  • 5. Conditions – External factors that may influence the final decision such as the economy, social environment, government regulations or bank conditions.

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