Mortgage Rates Beginner's Guide Craig Brearey .pdf
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US Mortgage Corporation (NMLS ID#3901). Corporate Office is located at 201 Old Country Road, Suite 140, Melville, NY 11747; (631) 580-2600 or
(800) 562-6715 (LOANS15).
Branch Office: (NMLS ID#875077) 200 Lakeside Drive, Suite 270, Horsham, PA 19044. Residential Mortgage Lender License-New Jersey Department
of Banking and Insurance and Licensed Lender-Pennsylvania Department of Banking. Rates, fees and program guidelines are subject to change
without notice. Certain restrictions may apply. Some loans arranged through third parties. First mortgages only. Not all products and/or programs
are available in all states. This document is not intended as an offer to extend credit nor a commitment to lend.
Table Of Contents
Chapter 1: What Is A Mortgage? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 01
Chapter 2: Types Of Mortgages And Mortgage Rates . . . . . . . . . . . . . . . . . Page 03
Chapter 3: Finding The Best Mortgage Rates . . . . . . . . . . . . . . . . . . . . . . . Page 07
Chapter 4: Mortgage Rate Lock-In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 09
• Things To Consider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 11
Chapter 5: Effects Of Changing Mortgage Rates . . . . . . . . . . . . . . . . . . . . Page 13
Chapter : 1
What Is A
Although almost all of us have heard of the word, ‘mortgage,’ most of us don’t really know
what it means. Unless you are planning on becoming a home-owner, you will not know
the terms and features of a mortgage. In the simplest terms, a mortgage is a loan that you
take out to buy a property. Unlike other types of loans, a mortgage takes a long time to pay
back and they are secured against property. Most mortgages have time-periods of around
25 years, so the choice of taking out a mortgage should not be taken lightly. Failure to
maintain repayments can result in the repossession of your home. This is a problem that
many Americans faced during the subprime crisis.
The interest rate at which the mortgage loan is taken is known as the mortgage rate.
Mortgage rates are not the same for all borrowers. The rates depend on type of loan,
time-period of the loan, the borrower’s credit history and the current economic situation.
Mortgages are very long-term loans and they are not as simple as other types of loans.
Also, by the end of the mortgage, borrowers end up paying a large amount as interest.
To get the lowest mortgage rate possible and to get the home of your dreams, you need
to research and compare and make sure you know enough about mortgages to take the
plunge. However, thousands of people apply for mortgages every year and beginners
looking to take out a mortgage can obtain all of the necessary information from the
Chapter : 2
T ypes of M ortgages
& Mortgage Rates
Taking out a mortgage is a life-changing decision as it can affect your financial
situation for the next couple of decades. Mortgage rates are obviously the most
important part of the mortgage as it decides the mortgage repayment installments.
You need to take out a mortgage with an interest rate and monthly installments
you can afford to pay. Different banks, lenders and financial institutions offer many
different types of mortgages with different rates. Moreover, these rates also depend
on the credit history of the borrower. However, all the types and rates of mortgages
fall into the following categories.
Chapter 2: Types of Mortgages & Mortgage Rates
• Fixed Rate
This is one of the safest types of mortgages available. In this type of mortgage, the interest or
mortgage rate will remain fixed for the entire term. This means that your monthly payments will
remain the same. This gives a sense of security and certainty to the borrower. Two common types of
fixed-rate mortgages are available – 30-year fixed mortgage and 15-year fixed mortgage. There are
other terms of mortgages available too.
The 30-year fixed mortgage is the most common type of mortgage that people take out. As the term
of this mortgage is very long, the monthly payments are very affordable. Also, the interest rate and
monthly payments do not change over the entire period. 15-year fixed rate mortgages are similar
except that the borrower has half the time to repay the loan. This means that the monthly payments
are higher. However, the shorter mortgage period allows people to build equity much faster.
• Adjustable Rate
Adjustable Rate Mortgages (ARMs) are riskier, as in this type of mortgage, the interest rate varies
with time. It can give homeowners a lower mortgage rate, but these rates vary with the market
and borrowers may end up paying more than they would with fixed rate mortgages in the long
run. These variable rate mortgages are also more complex and homeowners must comprehend the
contract properly before signing it to avoid nasty surprises. The rates of the ARMs may change on
a yearly basis.
• Combination Mortgages
As the name suggests, this type of mortgage loans combine fixed-rate and ARM features. Homeowners
are offered a fixed mortgage rate for a period of the term of the loan after which the interest rates
vary yearly, like that of ARMs. The interest rate of the mortgage can remain the same for three, five,
or seven years. After this period, it will be converted to an ARM.
• Split Rate
In this type of mortgage, homeowners are offered a fixed mortgage interest rate on part of the loan
balance and a variable rate on the rest. The balance can be split in many ways such as 75/25 and
• Introductory Rates
Such mortgage rates are offered by banks to lure customers and are often known as honeymoon
rates. In these types of mortgage loans, interest rates can be as low as 2% less than the market average
for a period of 6 months to a year. Once this time period expires, mortgage rates are converted back
to original rates matching market averages.