In simplest terms a 5/1 ARM (Adjustable Rate Mortgage) is a mortgage loan which will have a fixed rate of interest for the first five years, then the rate of interest will change every year thereafter for the remaining life of the loan.  Also note, most ARM loans can be interest only or amortizing.

The trick in understanding the 5/1 ARM however is not the rate of interest for the first five years, this will be clearly disclosed to the borrower at the front end.  The important thing to know about this type loan is what happens to your interest rate after the first five years.  In other words, how will future rate change calculations be made, what are the limits, if any and how much can my payments increase in the future? 

Key terms and calculations for these types of loans can vary widely.  Let’s begin by understanding the basic concepts embedded within all ARM’s:

The four key concepts along with an understanding of key terms for ARM’s are described below:

First key concept:  (Future Adjustment Calculations):  All ARM loans will have a predetermined financial Index and a predetermined Margin.  

                What is an Index:  For our purposes it is a “Reference Point” against which measurements are taken for making future adjustments.  Examples of Indices: Wall Street Journal prime, Federal discount rate, Fed funds rate, 10 year treasury rate or a host of many others.  Lenders are required to identify an index to be used in your interest rate calculations which you the borrower can readily have access to.  The most widely used index used in the 5/1 ARM is the one-year treasury security index.  The reason this is the most popular index is because it assists the lender in predicting their future annualized cost of funds (A this topic for another article).  The important things to know about the index is how to find the current value and it is constantly changing. 

                What is a margin: To keep it most simple for our short discussion, the margin is an arbitrary numerical value which is added to your index in order to calculate your future interest rate changes.  Your margin is set at the beginning of the loan and then remains the same for the life of the loan. 

For example purposes:  Say your lender had chosen a margin of 2.75% for the life of your loan.  To calculate your interest rate for the next period we would simply add the margin to the current index.  Say your current index was 2.87%, adding the two together would be your new rate of interest until the next change period ( 5.62%).  Many times for simplicity the lender will round to the nearest .125%.

The second key concept to understand about ARM loans is the frequency of your interest rate changes after the initial fixed rate period.  In the case of the 5/1 ARM we have already discussed that your rate of interest will change every year after the initial fixed rate period.  This of course would be different if your local lender wanted to offer you a 5 Year ARM, which would imply that the interest rate only changed every five years.

The third key concept is whether or not your loan has periodic interest rate caps.  In other words, how much can your interest increase at any given change date?  Also embedded in this concept is “Life of Loan Cap”.  In other words, is there a life time maximum interest rate?  This information is also required to be disclosed to you.  Common among 5/1 ARM terms, maximum interest rate increases are 2% annual and 5% maximum increase over the life of your loan.

 So with all this unknown jargon and complexity why would someone want a 5/1 ARM over a 30 year fixed rate mortgage?  Usually the 5/1 will always offer a lower mortgage rates compared to the 30 year fixed mortgage rate.   If you are planning on selling within 5 years start counting your savings.

It’s Black Friday and do we have a deal for you!  Mortgage rates at an all time record breaking low.  Call today. 

4.500% (4.592% APR) with zero points for 30 years

4.125% (4.197& APR) with zero points for a 15 year mortgage

Call for other pricing incentives.

Click here to see a sample (does not reflect your actual loan scenario)

The new GFE and the relationship between the HUD-1 and the Good Faith Estimate

To further protect consumers, the RESPA reform establishes tolerance levels for changes to costs laid out in the GFE so that no consumer will have to pay a wildly different amount for their actual closing costs than those previously detailed in the Good Faith Estimate.  Three separate categories of the tolerance levels were created.

Category I: Charges that cannot change from the GFE to the HUD-1;

1. Borrower’s origination charge
2. Credit or Charge for interest rate selected
3. Transfer Taxes

Category II: Charges that can increase in aggregate no ore than 10%;

1. Title Services
2. Lender’s title insurance
3. Appraisals
4. Credit Reports
5. Tax Service
6. Flood Certification
7. Mortgage Insurance Premium
8. Recording Charges

Category III: Charges that can increase with no cap;

1. Initial Deposits for escrow reserves
2. Daily Interest Charges
3. Homeowners Insurance
4. Lender Required services where the borrower shops for and selects their own third party provider
5. Services the borrower chooses to have that are not required by the lender

The GFE may be revised and reissued (in which event there could be increases in the charges) prior to settlement due to certain “changed circumstances”.  The HUD defines these circumstances as acts of God, war, disaster or other emergency; information about the borrower or transaction that changes or is found to be inaccurate after the issuance of the GFE (e.g., credit quality, loan amount, property value or other information); newly found information that was not previously relied upon as well as other possible circumstances.

The USDA home loan or (aka – 502 Direct Loans) for Florida residential buyers are designed to help the low-income or “very low income” home buyers.  All applicants can finance 100% of the purchase price of their new home and the mortgage payments are adjusted according to the household’s income.

The purpose of the USDA Florida home loan is to help low-income borrowers purchase homes in rural areas.  The mortgage can be used to build, repair, renovate or relocate a home, or to purchase and prepare site, including providing water and sewage facilities.

How can you qualify?  Borrowers/applicants for direct loans must have very low or low incomes.  This is defined as below 50% of the are median income; low income is between 50% and 80% of AMI-moderate income is 80-100% of AMI.  Families must be without adequate housing, but able to afford the mortgage payments, including taxes and insurance, which typically are within 22% to 26% to enhance repayment ability.  Applicants must be unable to obtain credit elsewhere, yet have reasonable credit.

USDA mortgage loan terms are for up to 33 years (360 months) and 38 years (456  months) for those with incomes below 60% of AMI and who cannot afford the 33 year-term.  The mortgage rate is based on the Government’s cost of money.  However, the interest rate is modified by payment assistance subsidy.

What are the requirements of the home?  The housing must be modest is size, design, and cost.  Modest housing is property that is considered modest for the area, does not have market value in excess of the applicable are loan limit, and does not have certain prohibited features.  Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards.  Manufactured housing must be permanently installe3d and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards.

• No mortgage insurance
• No Cash Reserve Requirements
• 102% of Appraised Value to cover closing costs
• No Cap on mortgage amount other than the Appraisal (plus 2% USDA-RD Fee)
• 6% Seller Concessions allowed to cover closing costs
• Gifts allowed and DO NOT NEED to come from a relative
• Try USDA before FHA because it requires not down payment
• minimum 620 credit score on all borrowers for NO MONEY DOWN
• No Declining Markets (open to all counties)

Prospects:  We still believe the prospects are good for extension of the tax credit.  There is real concern in the Administration about the strength of the economic recovery.  Treasury Secretary Geithner was quoted in the November 2^nd Business Week magazine stating: “we’re not going to make the mistake many countries made in the past of putting the brakes on too early and creating the risk of a weaker recovery with even higher levels of unemployment.”  On the negative side, the stories about fraud in tax credit program (e.g. children and current homeowners receiving the tax credit)  and concerns about the program cost obviously do not help. 

While the industry trade associations are making a major push for the expansion of the tax credit to all homeowners, it appears unlikely that it will be expanded beyond first-time homebuyers).  We will keep you apprised.

 Extension of Temporary Mortgage Limits

 We also could hear this week or next about whether the temporary mortgage limits will be extended for another year.   We are still optimistic that the temporary limits will be extended.  The Administration fully understands that the jumbo mortgage market is not functioning properly and that the GSEs and FHA will play a critical role for the 

There will be an important vote in the Senate this week on the housing tax credit provision.  The “Dodd-Lieberman-Isakson” amendment would extend the tax credit to June 30, 2010.  It would expand the credit to any homebuyer and raise the income limits to $150,000 ($300,000 for joint returns).  The amount of the tax credit would remain at $8,000.   

Prospects:  We still believe the prospects are good for extension of the tax credit.  There is real concern in the Administration about the strength of the economic recovery.  Treasury Secretary Geithner was quoted in the November 2^nd Business Week magazine stating: “we’re not going to make the mistake many countries made in the past of putting the brakes on too early and creating the risk of a weaker recovery with even higher levels of unemployment.”  On the negative side, the stories about fraud in tax credit program (e.g. children and current homeowners receiving the tax credit)  and concerns about the program cost obviously do not help. 

While the industry trade associations are making a major push for the expansion of the tax credit to all homeowners, it appears unlikely that it will be expanded beyond first-time homebuyers).  We will keep you apprised.

Extension of Temporary Mortgage Limits

We also could hear this week or next about whether the temporary mortgage limits will be extended for another year.   We are still optimistic that the temporary limits will be extended.  The Administration fully understands that the jumbo mortgage market is not functioning properly and that the GSEs and FHA will play a critical role for the

The 30 Year fixed rate mortgage is by far our most popular product for many reasons.  The 30 Year Fixed Rate mortgage offers many options for borrowers to meet their financial goals with long term payments, low interest rates, and more flexibility between lenders.

A 30 Year Fixed Rate mortgage offers predictability unlike mortgage ARM’S.  Generally people in Florida that plan to stay in the home more than 5 years will choose a 30 Year Mortgage rate.  If you decide on a 30 year fixed rate mortgage in Florida and choose to have EZZ Financial for your mortgage company you will have the ease of knowing you are working with a reputable Florida Mortgage Company, we have the lowest rates on 30 year mortgages, and our staff is eager to assist you along the way.

Although the 30 year mortgage rates are slightly higher than our low 15 year mortgage rates it still is beneficial when you are comparing the actual mortgage payment.  Compare 30 Year Fixed Rate mortgage vs. 15 Year Fixed Rate Mortgage.

We strive to meet everyone’s financial goals, but we also like to educate and make people aware of the mortgage payment on a 15 year mortgage term vs. 30 year mortgage term.  Both fixed rate products offer low mortgage rates, but there are obligations associated with both.  When you take a shorter term mortgage rate like the 15 Year Mortgage vs. the 30 year mortgage you are locking yourself into a much higher mortgage payment for 15 years and the only way to reduce your payment back to a 30 year term is to refinance.  With every refinance there are costs associated with it so choose wisely!.  Please make sure you are comfortable with either the 30 year fixed rate mortgage or the 15 year mortgage payment. 

We are glad you are here visiting our mortgage website and it will be most enjoyable helping you achieve your mortgage financial goals together.  Please call with any questions or concerns you may have regarding your 30 year fixed rate mortgage.

To apply for a 30 Year Fixed Rate Mortgage with the lowest mortgage rates on the web – please fill out the form below.

November 23, 2009:

Sales of existing U.S. homes increased more than forecast in October to the highest level since February 2007, spurred in part by a tax credit that lured first-time buyers.

Purchases rose 10.1 percent to a 6.1 million annual rate from a 5.54 million pace in September, the National Association of Realtors said today in Washington. The median sales price decreased 7.1 percent from October 2008, the smallest decline in more than a year.

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Our mortgage professionals can give you FREE loan advice to help you understand the mortgage process.

Wondering which loan is right for you? Not a problem! We can help determine which loan will fit your needs for your home purchase, refinance or debt consolidation needs.

If you have any questions, please contact us or call us!

Thanks!

 November 24, 2009

Mango, Florida – Home Purchase $85,000

Miami, Florida – Home Refinance $170,000

Green Covesprings, Florida – Florida Refinance $380,000

Ocala, Florida – Home Refinance $220,000

Graceville, Florida – Florida Refinance $275,000

West Palm Beach, Florida – Home Refinance $300,000

Clermont, Florida – Home Refinance $300,000

Coconut Grove, Florida – Home Refinance $220,000

Miami, Florida – Home Purchase $65,000

Deltona, Florida – Home Refinance $125,000

Spring Hill, Florida – Florida Refinacne $150,000

Lithia, Florida – Florida Refinance $230,000

Cooper City, Florida – Florida Refinance $190,000

Miami Beach, Florida - Home Purchase Loan $420,000

Palm Bay, Florida – Flordia Refinance $180,000 

Wellington, Florida – Florida Refinance $400,000

Boca Raton, Florida – Florida Purchase Loan $2,500,000

West Palm Beach, Florida – Florida Refinance $405,000

Jensen Beach, Florida – Florida Purchase $335,000

Palm Beach, Florida – Florida Refinance $1,125,000

Tammpa, Florida – Florida Purchase $146,000

Miami Beach, Florida – Florida Refinance $288,000

Boyton Beach, Florida – Florida Purchase $195,000

Lakeland, Florida – Florida Refinance $310,000

Port Charlotte, Florida – Home Purchase Price $170,000

Gainesville, Florida – Florida Refinance $300,000

Fort Walton Beach, Florida – Home Purchase $160,000

Saint Augustine, Florida – Home Refinance $200,000

Orlando, Florida -Florida Refinance $230,000

Plant City, Florida – Florida Refinance $130,000

Cocoa, Florida – Florida Refinance $240,000

Jupiter, Florida – Florida Refinance $150,000

Windsor, Florida – Home Purchase $50,000

Orlando, Florida – Home Purchase $125,000

Tallahassee, Florida – Home Purchase $70,000

Wacissa, Florida – Florida Refinance $130,000

North Port, Florida – Home Purchase $80,000

Alachua, Florida – Florida Refinance $310,000

Milton, Florida – Florida Refinance $145,000

Dover, Florida – Home Purchase $180,000

Myakka City, Florida – Home Refinance $290,000

Thank you for comparing our mortgage rates and knowing we are simply the best!

Another great reason to get quaified as early in the process as possible is to insure the fastest closing possible. If there are multiple offers going in on a home, you may be at a disadvantage if you are not able to secure financing quickly. Don’t wait until the last minute!

We have home purchase specialists standing by that can give you FREE home purchase finance advice. Feel free to request a FREE Rate Quote or to Contact Us directly.

More importantly, rates change daily and they can change quickly. Some mortgage professionals have recently noted that their rate quotes have only had shelf lives of three to four hours before market changes have deemed them inaccurate.

How does a consumer navigate fast changing markets in order to refinance their existing loan or purchase a home with the most favorable terms possible?

1. Plan – Define your needs ahead of time, do not wait until the last minute. This is especially true of home purchases.
2. Consult – Talk to your mortgage professional on a regular basis so they can interpret recent market events to you and communicate how those events can affect you.
3. Execute – When you have defined your needs and have determined that now is the best time to move forward, don’t shop yourself out of a good loan! What does this mean? It is easy to get caught up in shopping for the best rate, but it is not uncommon for home owners to miss locking their loan at a great rate because they are in search of better rates that do not exist or that they do not qualify for. It is important to shop to insure you are getting the best rate possible, but set limits to the number of companies you are going to consider doing business with and be careful of having your credit report needlessly and more times than is necessary!