Blog | Archives for February 2018

Why Adjustable Rate Mortgages Aren’t So Scary After All

By Southern Trust Mortgage
February 28, 2018

Adjustable Rate Mortgages are often an option many don’t want to touch with a ten foot pole. However, what you really could be doing is avoiding your very best option. Here’s why…

Back before the financial crisis of 2008, Adjustable Rate Mortgages (ARMs) were pretty popular. In fact, they made up a significant percentage of home loans. Nowadays, not only are they a lot less popular statistically, they’ve gotten a pretty bad rap. So are ARMs really as bad as their reputation makes them out to be? Short answer: It depends (of course it does, it’s the Mortgage Industry…right?) Now we’ll tell you why…

First thing’s first…what is an ARM loan?

Adjustable Rate Mortgages (ARM) offer a fixed rate period followed by adjustments in the interest rate at pre-determined intervals thereafter. As such, they often come with some of the lowest interest rates available out front!

Breaking It Down

There are all different types of Adjustable Rate Mortgages. Just a few examples are 5/5, 3/1, 5/1, 7/1, & 10/1 ARMs. What exactly do those numbers mean?

• First Number – The amount of time your introductory or initial rate stays fixed.

i.e. In a 5/1 ARM, your introductory rate would stay fixed for 5 years

• Second Number– How often the rate can change

i.e. In a 5/1 ARM, your rate would change every year (1) after the first 5 years

So the rate stays fixed for a pre-determined amount of time, then can either go up or down depending on the following…

Rate indexes and margins

The fixed rate period will eventually end, and after that your rate will either rise or lower depending on another rate called the index. This value is set by market forces and is always published by a neutral party. There are several different types of indexes, so your loan documents will specify which index your particular ARM follows.

Once your index value is determined, your lender will then add a certain number of percentage points, called the margin. Margins are fixed for the life of the loan and determined by what specific ARM product you choose. The index plus the margin is your fully indexed rate. This is will be the current rate on your ARM loan.

Let’s look at an example…

Let’s say you select a 5/1 ARM (the most popular in fact) and your rate for the fixed-rate period has an index of 1.25% and a margin of 3 percentage points. You would add them together to get your rate for the first 5 years of your loan, which would be 4.25%. After the fixed-rate period ends, the index is at 1.75% and the margin stays fixed at 3 percentage points. Your new rate would be 4.75% for that year. However, keep in mind that with this particular scenario, the rate can change every year thereafter (thus the “1” in 5/1 ARM). If it were a 5/5 ARM, it would change every 5 years after the first initial 5.

Ok, we know what you’re thinking. What if the index just goes up and up and up?! Not to worry, that’s why ARMs come with rate caps that are dependent on the type of ARM loan you choose. There are a few different kinds of caps so that you will be safe from any outrageous jumps in your rate. The following are the different types:

Periodic Rate Cap– limit to the percentage the interest rate can change from year to year
Lifetime Rate Cap – limit to the percentage the interest rate can change over the life of the loan
Payment Cap – limit to how much the monthly payment can rise (in dollars) over the life of the loan

That’s a lot of information! So here’s the Cliffs Notes version of it all…

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Pros and cons of adjustable rate mortgages:

Pros of Adjustable Rate Mortgages:

Usually have lower rates
After the fixed-rate period, the rate can actually go lower (an option not many consider!)
Are protected from huge rate jumps by rate caps

Cons of Adjustable Rate Mortgages:

Uncertainty about the interest rate market
Unpredictability about how much your monthly payment will be in the future

Situations Where An ARM Loan May Be Your Best Option

You know you won’t be in the home very long (I.e. military families or families that move around a lot for their careers)
You know you will be receiving a raise or salary bump in the near future
You know you’ll be receiving an inheritance or access to a trust fund in the near future
You know the home will be a starter home and you will not be in it forever
You know you’d like to do a refinance within 5-10 years of owning the home

There you have it…the good, the bad and the super confusing parts of ARM loans. As you can see, there are so many situations that an ARM loan could be your best option.

In a nutshell, don’t pay more for a 30-year loan price if you don’t have to. The aforementioned circumstances really merit a hard look at taking advantage of this unique loan type and having a significantly lower rate.

In conclusion, ARM loans really aren’t as scary as some may think. If you’re in the right situation, they can actually be your very cheapest option. Still hesitant? Make sure you let one of our trusted Mortgage Loan Officers guide you through the process of choosing the right option for you. Before you apply, keep in mind that Southern Trust offers several different types of ARM loans including 5/5, 5/1 and 10/1. We’ll be sure to find the perfect one for you!

Blog | Archives for February 2018

Everything You Need To Know About Interest Rates

By Southern Trust Mortgage
February 23, 2018

We hear about them all the time, especially in recent weeks. So what’s all the buzz about interest rates? …And how much do they actually affect your mortgage loan?

First things first, let’s define the term “interest rate”. An Interest Rate is defined as the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. In layman’s terms, it is basically how much you pay the bank to loan you the money. A portion of your mortgage payment each month goes towards your principal (paying down your loan), and another percentage goes toward interest (payment to the bank for loaning you the money). Therefore, your interest rate is what makes that percentage higher or lower.

So, how are interest rates determined in the market?

Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy. Over time, inflation has the largest influence on the level of interest rates. A modest rate of inflation will almost always lead to low interest rates, while concerns about rising inflation normally cause interest rates to increase. Our nation’s central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.

Why do we keep hearing about interest rates going up in the news…do we really need to “buy now” before rates get too high?

The truth is, interested rates have risen. Over the last few years, market interest rates have remained around 3.5% (very low compared to the historical average). This range gave homebuyers more buying power, which allowed them to buy homes with a higher price tag. However, as rates move towards 4.5% and up, buyers are starting to lose the power they once had. This doesn’t mean everyone needs to go buy a house right away. It’s very typical for the market to rise and fall before stabilizing, but it is a good time to take a look at your situation and whether or not you should take advantage of current rates before they climb higher. Like almost everything else in life, there is no hard or fast rule. If you’re still unsure whether now is the right time for you, our Mortgage Loan Officers are standing by to help guide you.

Do all consumers get the same rate depending on when they apply for a loan?

No, in addition to general interest rates rising and falling in the market, there are several factors that can determine your interest rate that a lender can offer you as a consumer. Let’s say two borrowers lock their interest rates on the exact same day, most likely their rates will differ depending on a number of specific circumstances and factors.

Factors That May Affect Your Mortgage Interest Rate:

Your Credit Score
In general, higher credit scores receive lower rates

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Location
Rates slightly differ depending on what state you live in

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Sales Price & Down Payment
You may pay a higher rate if your loan is uniquely large or particularly small

Loan Term (15 Year vs. 30 Year)
Typically, shorter loan terms have lower interest rates

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Rate Type (Fixed vs. Adjustable)
Adjustable rate mortgages usually have lower rates

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Loan Program
Rates may be lower or higher depending on what loan product you choose

Locking Vs. Floating Your Interest Rate

What does it mean to lock your rate versus float your rate?

Your Loan Officer will tell you when you are able to “lock in” your interest rate during the mortgage process. Once you do this, you are guaranteed that rate on your loan for a specific period of time (rate lock period), and the price will not change before closing unless the lock expires. Rate lock periods are usually offered as 30, 45 or 60 days. Keep in mind that even though your rate cannot go up during this time, it also cannot go down, so be sure to consult a professional on when the best time to lock your rate may be.

Some people choose to “float” their interest rate. This means your rate will go up and down with the market, and a price is not guaranteed. In essence, you are taking on the risk that the rate may go up before you close on your loan, in order to be able to take advantage of a lower rate if they do fall. This is more of a gamble but can pay off in the end if rates go down during your home loan process.

How do I know if it’s best to lock in my interest rate or to let it float?

Mortgage interest rate movements are as hard to predict as the stock market, and no one can really know for certain whether they’ll go up or down. If you have a hunch that rates are on an upward trend then you’ll want to consider locking the rate as soon as you are able. Before you decide to lock, make sure that your loan can close within the lock-in period. It won’t do any good to lock your rate if you can’t close during the rate lock period. If you’re purchasing a home, review your contract for the estimated closing date to help you choose the right rate lock period. If you are refinancing, in most cases, your loan could close within 30 days. However, if you have any secondary financing on the home that won’t be paid off, allow some extra time since we’ll need to contact that lender to get their permission. If you think rates might drop while your loan is being processed, you may want to take a risk and let your rate “float” instead of locking. After you apply, you can lock in by contacting your Mortgage Loan Officer.

APRs

What is an APR? Is comparing APR’s the best way to decide which lender has the lowest rates and fees?

The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees, in addition to the interest rate, determine the estimated cost of financing over the full term of the loan. Since most people do not keep their mortgage for the entire loan term, it may be misleading to spread the effect of some of these upfront costs over the entire loan term. Also, unfortunately, the APR doesn’t include all the closing fees and lenders are allowed to interpret which fees they include. Fees for things like appraisals, title work, and document preparation are not included even though you’ll probably have to pay them. For adjustable rate mortgages, the APR can be even more confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments. You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that’s best for you. Look at total fees, possible rate adjustments in the future if you’re comparing adjustable rate mortgages, and consider the length of time that you plan on having the mortgage. Don’t forget that the APR is an effective interest rate–not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.

Discount Points

Should I pay discount points in exchange for a lower interest rate?

Discount points are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them up front at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing, however, you will have lower monthly payments over the term of your loan. To determine whether it makes sense for you to pay discount points, you should compare the cost of the discount points to the monthly payments savings created by the lower interest rate. Divide the total cost of the discount points by the savings in each monthly payment. This calculation provides the number of payments you’ll make before you actually begin to save money by paying discount points. If the number of months it will take to recoup the discount points is longer than you plan on having this mortgage, you should consider the loan program option that doesn’t require discount points to be paid. Don’t know what your monthly payment looks like yet? Use our payment calculator for help!

When can I lock in my interest rate and discount points?

You can lock in your interest rate and discount points as soon as your loan is approved and you pay the application deposit to cover the cost of your appraisal and final credit report. The application deposit is not another fee, it’s actually just the appraisal cost estimate and will be credited to the actual appraisal cost at your closing. If you complete your application today, and your request is approved online, you’ll have the opportunity to pay the application deposit via credit card and can lock in your great rate immediately.

The Southern Trust Mortgage Rate Lock Policy

General Statement
The interest rate market is subject to movements without advance notice. Locking in a rate protects you from the time that your lock is confirmed to the day that your lock period expires.

Lock-In Agreement
A lock is an agreement by the borrower and the lender and specifies the number of days for which a loan’s interest rate and discount points are guaranteed. Should interest rates rise during that period, we are obligated to honor the committed rate. Should interest rates fall during that period, the borrower must honor the lock.

When Can I Lock?
Your Morgage Loan Officer will be notifying you when you are able to request a lock.

Fees
We do not charge a fee for locking in your interest rate. For lock terms exceeding 60 days, an upfront fee may be required, please discuss these options with your Mortgage Loan Officer.

Lock Period
This means your loan must close and disburse within this number of days from the day your lock is confirmed by us.

Lock Changes
Once we accept your lock, your loan is committed into a secondary market transaction. Therefore, we are not able to renegotiate lock commitments.

When going through the mortgage loan process, your rate is not something to be apathetic about. A difference in just a fraction of the percentage can mean thousands of dollars over the life of your loan. Ask as many questions as possible about what interest rate fits best with your unique situation. Also, keep an eye on what the market is doing by following our #MarketUpdateMonday. As always, our mortgage professionals are happy to help assist you in any way we can!

Blog | Archives for February 2018

Good (and not so good) Places to Hide House Keys

By Southern Trust Mortgage
February 18, 2018

Let’s face it, we all lock ourselves out of the house sometimes.

A common way to avoid the frustration of sitting outside waiting for a locksmith is to hide a spare key. The problem is, burglars often know the most commonly considered hiding places. Homeowners need to be very careful when choosing where to place a spare key. It is a balancing act between having it easily accessible to you, yet discreet enough so that unwanted guests can’t find it. Here are some of the best and worst places we’ve found…

The Good:

Neighbors

A trustworthy neighbor is a great place to keep an extra key. But if you get locked out during the day while your neighbor is at work, or at night when the household is asleep, you could still end up in a predicament. Have a backup plan. If you happen to trust more than one neighbor or close by household, give a few keys out. The more people that have them that you trust, the better chance someone will be home if you are in need of a spare.

Properly placed faux rock key hiders

and other garden décor are inexpensive and simple solutions. With modern improvements, they don’t even look tacky anymore! They come in various styles and sizes, and they can easily blend in with many types of landscaping. Just don’t forget where you put it!

The Seams of Exterior Siding

sometimes have room for a key. Tie a fishing line loop to the end of your spare key and then slide the key between the seams, leaving a bit of the fishing line exposed. If you get locked out, give the line a tug. Easy Peasy.

If you have a back deck with access underneath,

you can hammer a small nail and hang a spare key in a secret spot. Make sure to place the nail directly under a “landmark” item so you know right where to look when you need it. Some suggestions would be a potted plant or the grill.

“It is a balancing act between having it easily accessible to you, yet discreet enough so that unwanted guests can’t find it.”

The Not-So-Good:

Under The Mat

Under the welcome mat or a flower pot near the front door. Not only are these the most convenient hiding places, they are also the first places a burglar will check.

Faux Rocks (again)

Improperly placed faux rocks or other garden key hiders are a dead giveaway. A random rock sitting in the middle of an otherwise “rock-less” garden sticks out like a sore thumb. Unless they blend into the surrounding landscape, they will be easy for burglars to spot, who often know many of these devices by sight.

Your Wallet

Your wallet might seem like a safe place at first thought. But if your wallet is lost or stolen, a thief will not only have your house key, your home address as well.

Your Car

This may seem like something you’ll never lose, but if you’re locked out of your house, chances are that you’re locked out of your car too! Just don’t do it…

Nothing is worse than coming home to a burglarized house and the feeling of privacy invasion. These tips can spare you the aggravation of being locked out of your home and keep you from becoming a victim of robbery.

Blog | Archives for February 2018

Your Credit Score: What It Means for Your Mortgage

Your creditworthiness is a big factor in determining your mortgage interest rate when applying for a home loan.

By Southern Trust Mortgage
February 15, 2018

When you apply for a home loan, your credit score is one of the most important factors that determines the interest rate you’ll pay. It gives mortgage lenders a clear look into your financial habits, including your payment history and how you manage debt. This helps them understand how likely you are to make your monthly mortgage payments on time.

Your credit score or FICO score is the number that reflects your creditworthiness. Let’s dive a little deeper into what a credit score is and how it impacts your home loan application.

Understanding Your Credit Score

As one of the many pieces of information that mortgage lenders use to evaluate your application, your credit score is a numerical snapshot of your credit history. Credit bureaus (like Equifax, Experian, and TransUnion) calculate your credit score by compiling information from your creditors, such as balances you owe and payment history. This score helps your lender quickly and objectively determine the likelihood that you will repay the loan.

What Makes Up Your Credit Score?

Credit scores range from 300 to 900. Generally, the higher your score, the lower risk you represent to your lender. Lower risk often leads to a lower interest rate on your mortgage.

Here is a breakdown of the key factors that influence your credit score:

Payment History (35%): Your track record of making payments on time.
Amounts Owed (30%): How much debt you currently have.
Length of Credit History (15%): How long your credit accounts have been open.
New Credit (10%): How many new credit accounts you have recently opened.
Credit Mix (10%): The variety of credit types you have (e.g., credit cards, auto loans, student loans).

Credit Score Ranges and Ratings:

Excellent: 750-900
Good: 700-749
Fair: 650-699
Poor: 550-649
Very Poor: 300-549

Common Questions About Credit and Mortgages:

We often hear these two questions when we ask to access a borrower’s credit for a loan application

Will I be charged a fee to check my credit?

No. We don’t charge you for the initial credit check to evaluate your application. You will only be charged for a credit report if you decide to complete the application process after your loan is approved.

Will checking my credit affect my credit score?

A “hard inquiry” from a mortgage lender can sometimes slightly affect your score, but don’t let that stop you from shopping for the best loan. All mortgage inquiries made within any 14-day period are counted as a single inquiry. This helps you compare loan options without negatively impacting your score.

Get a Free Credit Report:

If you’ve never had your credit pulled and want to know where you stand, you can get a free copy of your credit report once a year from each of the three major credit reporting agencies. You can do this by visiting AnnualCreditReport.com. Checking your own report has no impact on your credit score.

Ready to start your journey to homeownership? Contact us today to get pre-approved!