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FAQs
What is the difference between
fixed rate and variable rate mortgages?
A fixed rate mortgage is
a loan where the principle and interest payment never change during
the life of the loan.
A variable rate mortgage is a loan where the interest rate can
change periodically. The changes in the interest rate are tied into
the market rates that exist at the time the interest rate is subject to
change. They usually offer lower interest rates than fixed rate
mortgages, but can adjust upward if interest rates go up. There is a
predefined cap which defines how high the interest rate can adjust.
Fixed rate mortgages are beneficial to those who are on a fixed
income, (adverse to interest rate change) and those who prefer fixed
payment schedules.
Adjustable rate mortgages are advantageous for those who do not plan
to stay in their home for a long time, for those borrowers who do
not qualify at higher fixed interest rates, and those who can
financially handle fluctuating payments.Top of
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How do adjustable rate mortgages
work?
There are many types of adjustable rate mortgages, but all have some
common features.
One common feature of adjustable rate mortgages is an interest rate
change that occurs after a stipulated number of payments have been
made. The interest rate can increase or decrease depending on how
the new interest rate is calculated. Typically, the interest rate
change is based upon a predetermined index value and a margin. If a
mortgagor currently has an interest rate that is pending adjustment,
the new rate would be calculated by adding the current index rate
and a margin. For example, if the mortgagor’s current interest rate was
6.000% with a 2.000% margin, the new interest rate would be determined by
adding the current index rate (5.000% as an example) to the margin.
In this example the new interest rate would be 7.000%.
The maximum amount the interest rate can change during any
adjustment period is usually fixed. This maximum adjustment is
called the cap. Adjustable rate mortgages also have a lifetime cap,
preventing the interest rate from exceeding a predetermined rate.
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What are escrow accounts and how
much do I need in my escrow account?
Escrows are payments made by a mortgagor to a mortgagee for the
purpose of paying the mortgagor’s taxes, insurance, and other
payments associated with home ownership. The mortgagee is
responsible for the timely disbursement of escrow funds to pay the
mortgagor’s bills as they come due.
Usually, a mortgage company collects funds for placement into the
mortgagor’s escrow account with the mortgagor’s periodic payment for
principal and interest. An escrow account has sufficient funds if
there is enough to pay all bills when they come due.
It is common practice for mortgage companies to hold an escrow
cushion for a mortgagor. The cushion is kept by the mortgage company
to assure that if the cost of any escrowed item were to increase in
the future, there would be sufficient funds to pay all bills as they
come due.
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What happens after I apply?
The time it takes to complete the loan process varies for each
application. Here is a list of the stages required to process a
mortgage. Remember that completing your application accurately and
fully will help speed the process. Some of these stages may only
take a few minutes or a few hours to complete.
Processing
After you apply, a loan processor will collect documents and
verification to support your request for a loan. The time in
processing will vary depending on the type of loan and how quickly
the processor receives the documents needed. Much of the processing
involves help from other sources such as:
Appraisal - An appraiser will judge the value of the
property, generally based on the recent sales in your market.
Credit Verification - We will request a credit report through
a credit-reporting agency to verify your outstanding debts and
payment history.
Income Verification - Income may be verified with copies of
your pay stubs, W-2 forms, tax returns or by an employer.
Asset Verification - To confirm that you have sufficient
funds required to complete your mortgage.
Underwriting
Once the application is processed, your processor will submit the
complete package for review. The underwriter compares your loan
request to the guidelines of the Bank or its investors for the type
of loan. Then the underwriter issues a decision on your application
based on established guidelines.
Closing
The closing occurs when you sign the papers for your mortgage loan,
and when the property is transferred, if your loan is for a home
purchase.
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What is a Truth-in-Lending
Disclosure and why do I receive it?
The Disclosure is designed to give you information about the costs
of your loan so that you may compare these costs with those of other
loan programs or lenders.
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What is the ANNUAL PERCENTAGE
RATE?
The Annual Percentage Rate (APR) is the cost of your credit
expressed as an annual rate. Because you may be paying loan discount
points and other pre-paid finance charges at closing, the APR
disclosed is often higher than the interest rate on your loan.
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Why is the ANNUAL PERCENTAGE
RATE different from the interest rate for which I applied?
The APR is computed from the Amount Financed and is based on what
your proposed payments will be on the actual loan amount credited to
you at settlement. For example, on a $50,000 loan with $2,000
Prepaid Finance Charges, a 30-year term and a fixed interest rate of
12%, the payments would be $514.31 (principal and interest). Since
the APR is based on the Amount Financed ($48,000), while the payment
is based on the actual loan amount given ($50,000), the APR
(12.553%) is higher than the interest rate.
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What is a credit report?
A credit report is a record of your credit activities. It lists any
credit card accounts or loans you may have, the balances, and how
regularly you make your payments. It also shows if any action has
been taken against you because of unpaid bills.
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Who is allowed to see my credit
report?
Credit bureaus (also called credit reporting companies) can provide
information only to the following requestors: 1) creditors who are
considering granting or have granted you credit; 2) employers
considering you for employment, promotion, reassignment, or
retention; 3) insurers considering you for an insurance policy or
reviewing an existing policy; 4) government agencies reviewing your
financial status in connection with issuing you certain licenses or
government benefits; and 5) anyone else with a legitimate business
reason for needing the information (such as a potential landlord).
Credit bureaus also furnish reports if so required by court orders
or federal jury subpoenas and they will also issue your report to a
third party if you give them written instructions to do so.
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What type of information is on
my credit report?
There are usually four types of information:
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Identifying Information :
Your name (including if you are a Sr., Jr., or a III), nicknames,
current and previous addresses, social security number, year of
birth, current and previous employers, and, if applicable, your
spouse's name.
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Credit Information :
The accounts you have with banks, retailers, credit card issuers,
and other lenders. The accounts are listed by type of loan
(mortgage, student loan, revolving credit), the date you opened
the account, your credit limit or the loan amount, any co-signers
of the loan, and your payment pattern over the past two years.
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Public Recording Information :
State and county court records on bankruptcy, tax liens, or
monetary judgments. (Some credit reporting companies list
non-monetary judgments as well.)
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Inquiries:
The names of those who have obtained copies of your credit report
within the last six months (two years for employment purposes).
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Where do the credit reporting
companies get their information?
From parties that have previously extended credit to you, such as
the department store that issued you a credit card or the bank that
issued you a personal loan.
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What should I do if I find an
error on my credit report?
Notify the credit reporting company immediately. If the company
cannot confirm the information under dispute, it will be removed
from your file and a corrected report will be sent to those parties
you specify who have received your report within the past six months
(or within two years if the party requested your report for
employment purposes).
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How do I get a copy of my credit
report?
Write or call the three major credit bureaus listed below. Include
your name, address, telephone number, previous addresses (for the
last five years), your social security number, and your date of
birth. If you are married, be sure to include the same information
for your spouse.
You may be charged a fee, unless your request comes within 30 days
of having been denied credit on the basis of information contained
in a report.
Equifax - EISC
P.O. Box 740241, Atlanta, GA 30374
1-800-685-1111
TRW, Inc. - Complimentary Report
P.O. Box 2350, Chatsworth, CA 91313-2350
1-800-392-1122
Trans Union Corporation - Consumer Relations Center
P.O. Box 7000, North Olmsted, OH 44070
313-689-3888
Keep in mind that the three large bureaus do not necessarily
share information with each other. The content of your credit report
can vary across bureaus, so it's a good idea to request copies from
each one.
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What is private mortgage
insurance?
Mortgage insurance is a type of guaranty that helps protect lenders
against the costs of foreclosure. This insurance protection is
provided by private mortgage insurance companies. It enables lenders
to accept lower down payments than they would normally accept. In
effect, mortgage insurance provides what the equity of a higher down
payment would provide to cover a lender's losses in the unfortunate
event of foreclosure. Therefore, without mortgage insurance, you
might not be able to buy a home without a 20% down payment.
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Is private mortgage insurance
different from other kinds of insurance associated with mortgages?
Private mortgage insurance protects the lender in the event of
borrower default and subsequent foreclosure on the home. FHA and VA
insurance also protect the lender against borrower default under a
government program rather than through the private enterprise
system. Credit life insurance (sometimes called mortgage insurance)
is life insurance coverage that pays off the mortgage in the event a
borrower dies, becomes disabled, or incurs loss of health, according
to the terms of the insurance policy. Fire, liability, and theft
insurance cover the homeowner and lender from losses, according to
the terms and conditions of their respective insurance policies.
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What is Title Insurance?
Title insurance is perhaps one of the most misunderstood of all
types of insurance. While property and casualty types of insurance
(homeowners, auto, life) insure you for things that may happen in
the future, title insurance insures you of things that may have
happened in the past. Title insurance guarantees the policy holder
(you, the individual, or the lender who holds a mortgage on
property) marketable title. In other words, if you have title
insurance, you are insured that your property can be conveyed to
another without defects or encumbrances.
Additionally, title insurance protects the
policyholder from claims against the properties from others. For
example, if a neighbor claims he owns part of your property and
decides to sue to that effect, your title policy will pay to defend
that claim up to the amount of your policy.
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What is Homeowners Insurance and
is it required?
By law, every homeowner is required to have homeowners insurance.
Without it, you can't take possession of the home. A typical policy
reimburses you for losses or damage to the house and its contents
and protects you against personal liability. Carnall Insurance,
Inc., a wholly-owned subsidiary of Fairfield County Bank, can
assist you with your Homeowners Insurance. For a free, no-obligation
quote, contact Carnall Insurance, Inc. at (203) 438-0404 or
toll-free at 1-888-438-0404. To visit Carnall's website
click here. To
return to this page use the back button on your web browser.
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