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Mortgage Q & A

Q. What is PMI?

A. Private Mortgage Insurance (PMI) is required when a borrower provides a down payment of less than 20%. PMI partially protects the lender from loss if the borrower fails to make his or her mortgage payments. When the loan-to-value (LTV) reaches 80% or below, the PMI requirement can be removed. This will decrease the total monthly loan payment. PMI deletion requirements may vary.

Q. How much money will I save by choosing a 15-year loan rather than a 30-year loan?

A. A 15-year fixed rate mortgage gives you the ability to own your home free and clear in 15 years. And, while the monthly payments are somewhat higher than a 30-year loan, the interest rate on the 15-year mortgage is usually a little lower and—more importantly—you'll pay less than half the total interest cost of the traditional 30-year mortgage.

However, if you can't afford the higher monthly payment of a 15-year mortgage don't feel alone. Many borrowers find the higher payment out of reach and choose a 30-year mortgage. It still makes sense to use a 30-year mortgage for most people.

Q. Is comparing annual percentage rates (APRs) the best way to decide which lender has the lowest rate and fees?

A. The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees, in addition to the interest rate, determine the estimated cost of financing over the full term of the loan. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up-front costs over the entire loan term.

Also, unfortunately, the APR doesn't include all the closing fees and lenders are allowed to interpret which fees they include. Fees for things like appraisals, title work, and document preparation are not included even though you'll probably have to pay them.

For adjustable rate mortgages, the APR can be even more confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.

You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that's best for you. Look at total fees, possible rate adjustments in the future if you're comparing adjustable rate mortgages, and consider the length of time that you plan on having the mortgage.

Don't forget that the APR is an effective interest rate--not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.

Q. What is the difference between a fixed rate and an adjustable rate mortgage?

A. Fixed rate mortgages feature a constant interest rate which remains the same for the entire term of the loan. With adjustable rate mortgages (ARMs) the interest rate may vary over the course of the loan. Typically, the interest rate is lower the first year, then increases at predetermined intervals. This means your payments increase as well.

Q. How do I know how much house I can afford

A. Even before you start looking for a home, you can apply for pre-approved financing from REPUBLIC MORTGAGE HOME LOANS. You will know what you can afford and the seller will know you are a serious buyer. It’s also a great way to speed up the buying process.