Big Bear Real Estate, Big Bear Lake, CA

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Keller Williams - Big Bear Real Estate

For All of Your Big Bear Lake Real Estate
Buying, Selling & Management needs
Big Bear Real Estate, Big Bear Lake, CA

Big Bear Real Estate - Mortgage & Loan info

Ready to look for a home? First get pre qualified. This will give you a good idea about what price range you should stay within and will allow you to make a strong offer, that often seals to deals for the seller.

Big Bear Real Estate provides convenient financing solutions.
Our agents will assist with coordinating appraisals or any other aspect of the loan approval process.

What mortgage loan is the best for me?
How to select the best loan when buying Big Bear Real Estate

In order to make the best decision for yourself, it is important to understand the differences between loan types.

Fixed Rate Loans
are those loans that start at a specific interest rate and remain at that rate no matter what happens in the financial markets. If your rate in 6% the day you get your loan, it will be 6% until you pay the loan off. Typically, fixed rate loans are written for a period on 30 years (360 monthly payments), or 15 years (180 monthly payments). Terms of 10 and 20 years are also available from some investors. In a fixed rate loan, lenders charge a premium to hedge against inflation. The borrower pays a premium to lock their rates for 30 years. It is interesting to note that over the past few years, the median age of a refinanced loan was just over 3.1 years. Nonetheless, long term fixed rate products remain the dominant product, accounting for almost 80% of all loan originations in 2003.

With an ARM (see below) rates change periodically, tracking the overall economy and this enables lenders to charge lower initial rates. Most people change their loans, either by selling their home or refinancing it, and have thereby paid more for their mortgage than necessary.

Adjustable Rate Mortgage (ARM)
Loans are more complex, as they have two components that determine the interest rate, the index and the margin. The index is the rate of a short term maturity, such as the Treasury bond or 6 month certificates of deposit. The margin is a static value, usually between 2 and 3%, which is added to the index to produce the fully indexed rate, which is the one you pay. The amount that the interest rate can change is limited to protect the consumer. It can usually only increase 2% per year and 6 % over the entire life of the loan. Start rates for ARM’s are typically significantly lower than for Fixed Rate loans. It is not guaranteed that the rate will go up, it can stay the same and in some cases decrease depending on financial market changes.

It is important to discuss and fully understand the following factors when considering an Adjustable Rate Mortgage loan. Be sure to address each with your loan officer before deciding to apply for one. These factors are:

Adjustment Period A predetermined period of time. At the end of this interval the interest rate is adjusted, based on the index. Typically, this is an annual event.

Index The Standard used to track the change in the economy that will determine the direction and degree of rate change. Some indexes are less volatile than others.

Margin The percentage that will be added to the index to obtain the rate that your loan interest will adjust too.

Annual Cap The maximum amount the interest rate can increase per year.

Lifetime Cap The maximum amount the interest rate can increase over the life of the loan.

Hybrid Loans Hybrid ARM’s provide homeowners with a unique advantage because they adjust like an ARM but have an initial fixed rate from 1, 3, 5 or 7 years. Often they are advertised an 5/1 or 7/1 ARM’s. This can be “decoded” as meaning fixed for 5 or 7 years and then adjusting once every year. Its popularity is increasing, as borrowers become more knowledgeable of the mortgage market. The start rate increase proportionally with the length of the initial fixed period.

Interest Only Loans
As the name implies, these are loans that are designed to have only the interest generated by the loan paid on a monthly basis. A “fully Amortized” loan, which is the traditional mortgage type, requires both the interest and principle to be paid each month. By only collecting the interest due each month, the monthly payments are reduced. This loan appeals to those who are interested in maximizing their available funds each month. It is also an excellent way to qualify for a higher loan amount as the lower payments will result in a lower overall debt-to-income ratio, often allowing a higher loan amount

Optional Payment Flexibility is the key here!. Each month the lender informs the borrower of three optional payments. First, there is the normal principle and interest payment, which if paid each month would result in a gradual decrease in the loan balance. Then there is the interest only payment which pays the interest due for the month and leaves the loan balance constant. Finally there is the deferred interest (negative amortization) payment. The deferred interest payment is based on an artificially low interest rate. The payment is not enough to pay the full interest earned for the month. The unpaid interest is added to the loan balance. Each time this option is selected, the principle amount of the loan increases.

Balloon Payment
After making payments for an agreed upon period of time, the entire loan balance becomes due and payable. There is the possibility of refinancing the loan at the time the balloon payment is due, but the lender is under no obligation to refinance the loan. It is extremely important that the borrower understands all of the term of this and any other loan type.

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