Interest Rates

Interest Rates in Hudson Valley NYSeveral Factors Affect Your Hudson Valley Mortgage Rate

The amount of your loan can increase your interest rate if the amount financed exceeds the conforming loan limits established by Fannie Mae and Freddie Mac. The conforming loan limit changes at the beginning of each year.

Shorter loans, such as 20-year or 15-year notes, can save you thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower interest rate than a fixed rate mortgage, but your payments could get higher when the interest rate changes.

A larger down payment – greater than 20% -  will give you the best possible rate. Down payments of 5% or less will result in a higher rate, as you are starting with less equity as collateral. If you’ve got the cash now and want to lower your payments, you can pay on your loan to lower your mortgage rate. It’s a simple concept, really: In exchange for more money upfront, lenders are willing to lower the interest rate they charge, cutting the borrower’s payments. Closing costs are fees paid by the lender, if you don’t want to pay all of the closing costs, expect a higher rate which will pay the lender additional interest over the life of the loan.

Credit quality and debt-to-income-ratio affect the terms of your loan through your FICO score. If you have good credit and your monthly income far surpasses your monthly debt obligations, you will be approved at a lower interest rate. However, if your monthly income barely covers your minimum debt obligations, even if you have a good credit report, you may not receive the lowest available interest rate.



Annual Percentage Rate (APR)

A tool used to compare loans across different loan programs is the Annual Percentage Rate (APR). The Federal Truth in Lending law requires Home Savings of America and other mortgage companies to disclose the APR when they advertise a rate. It is designed to represent the true cost of the loan to the borrower, expressed in the form of a yearly rate. The APR includes the interest rate and certain fees.

One confusing aspect of APRs is that the APR on 15 year loans will carry a higher relative rate due to the fact that the points are amortized over the 15 year term rather than the 30 year term. When a Regulation Z (the mortgage company’s disclosure of cost for the loan) is prepared for a buyer/borrower, the prepaid interest is also included in the APR calculation.

The rules for the APR calculation are defined by the Truth in Lending Act/Regulation Z; however APRs may vary from lender to lender and from loan to loan, depending on which types of fees and charges are included.  In addition Adjustable Rate Mortgages (ARMs), products are  tied to a market index that varies.  However for the APR, the index is assumed to be constant.   This assumption is required because we cannot predict future changes in interest rates.  While the model does not provide a completely accurate picture of the future costs, all lenders are required to use the same model.  When considering an ARM, you must be cognizant of the fact that index values and the future interest rates for your ARM loan may increase or decrease.

Finally, there may be other costs associated with a loan that are not included in the APR such as  balloon payments and prepayment penalties or how your rate will adjust of the life of the loan and the impact of interest rate caps.  You can use APRs as a guideline to shop for loans, but you should not depend solely on the APR in choosing which loan is best for your needs. Your Home Savings Community Banker can help you create a comparison matrix when you shop for loans so you can find a loan product that best suits your financial needs and objectives.



Lock In Your Interest Rate

A lock, also called a rate lock or rate commitment, is Home Savings’ promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan application is processed. Depending upon the lender you choose, you may be able to lock in the interest rate and number of points that you will be charged when you file your application, during processing of the loan, when the loan is approved, or later.

A rate lock that is given when you apply for a loan is beneficial because it’s likely to take your lender several weeks or longer to prepare, document, and evaluate your loan application. During that time, the cost of mortgages may change. However, since your interest rate and points are locked in, you should be protected against increases while your application is processed. This protection could affect whether you can afford the mortgage. On the other hand, a locked-in rate could also prevent you from taking advantage of price decreases, unless your lender is willing to lock in a lower rate that becomes available during this period.

It is important to recognize that a rate lock is not the same as a loan commitment, although some loan commitments may contain a rate lock. A loan commitment is the lender’s promise to extend to you a loan in a specific amount at some future time. Generally, you will receive the lender’s commitment only after your loan application has been approved. This commitment usually will state the loan terms that have been approved (including loan amount), how long the commitment is valid, and the lender’s conditions for making the loan such as receipt of a satisfactory title insurance policy protecting the lender.



Closing Costs Explained

Closing costs are the actual expenses that Home Savings of America or other lenders incur in the origination of a new home loan. Some of the costs are related to your loan application, such as the expense of a credit report on all applicants. Other fees are related to the house itself, such as the property appraisal. Others are payment to the lender for processing your application, such as the loan origination fee.

Unless the seller offers to pay them for you, these expenses are charged to the buyer and often run between 2 and 3 percent of the amount being borrowed. Because different states have different fees and taxes that are a part of these costs, it’s impossible to generalize nationwide.

Common closing costs can include processing and underwriting fee, mortgage insurance premium, appraisal fee, the cost of a credit report, tax service fee, application, commitment, wire transfer fee, etc. Escrow accounts are often required for many loans for homeowners insurance, real estate taxes, and some homeowners associations may require cash deposits at closing.

After your initial meeting with a mortgage professional, you will receive a Good Faith Estimate that includes all the estimated costs to close your loan, as well as an initial Truth in lending disclosure that provides the costs and the APR.



Should I Pay Discount Points?

A discount point, which equals 1% of the total loan amount, is an upfront fee that reduces your monthly interest rate and total interest due over the life of a loan. This means that a one point loan will always have a lower interest rate than a no point loan. Paying points is in essence a tradeoff between paying money now versus paying more money later, over the life of your loan.  .

Deciding whether to pay points depends on how long you are looking to keep the loan. Home Savings of America’s Community Bankers suggest paying points up front if you plan on keeping the loan for at least four years to ensure that you recoup the costs through lower monthly payments. If you think that you might move within the next four years or might want to refinance because the market rate is declining, then you probably would be better off with a no point loan.

Lenders allow you to choose among a variety of rate and point combinations for the same loan product. Therefore, when comparing rates from different lenders, make sure you compare the associated points and rate combinations of the offered program. The published Annual Percentage Rate (APR) is a tool used to compare different terms, offered rates, and points among different lenders and programs.  A Home Saving Community Banker can assist you in determining the rate, points and term option that will best fit your financial needs and goals.