Bear Real Estate - Mortgage & Loan info
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.
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
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.
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.
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
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
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.
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