Interest Only Mortgage Loan

Mortgage Interest Rate - There are several factors that can determine your mortgage interest rate. Each of which can carry a different weight when your interest rate is determined.


Below are a list of mortgage interest rate determining factors:

Combined Loan-to-Value (CLTV) ratio: is the percentage of the total loan amount divided by the value of the property. For example, if you have the first mortgage amount for 80% of the property value and the second mortgage amount for 15% of the property value, your CLTV will be 95%. Borrowers with lower CLTV ratio will find the loans with lower interest rates.

Escrows: The property taxes and home owners insurance can be paid one of two ways. Either you can pay them your self when they are due or you can have your lender collect a monthly payment and your lender will pay them when they are due. If your lender collects a monthly amount this is called an Escrow. If you choose to waive the escrows and pay for the taxes and insurance yourself some lenders will consider this an additional risk and increase your interest rate by about 0.25%

Paying Points upfront can lower your mortgage interest rate. Your Loan Officer should help you determine if paying points will save you money based on your future plans.

Debt to Income Ratio: This is the amount of monthly obligations you owe divided by your gross montlhy income. This number is used to determine how capable you are of repaying your potential mortgage.

Past 12 Month Mortgage History: One of the single most important fact when determining one's mortgage interest rate is their mortgage, or rental, history. Many lenders will look back 24 months to see how your housing payment history has been. Some lenders will only look back 12 months and others may look back even further. Obviously, someone who has a a number of late payments or slow payments on their mortgage or rent is going to present a higher risk to a lender than someone who continually pays their housing payments on time.

Loan to Value (LTV): Is the amount of money you owe on your house or the amount you are trying to borrower versus how much your house is worth. When you loan to value is low, it is more favorable to the lender to give you the best rate possible becuase you have a lot of equity in your house and will be less prone to foreclosure in the lender eyes. When your LTV is high then you will get a higher rate.

Bankruptcy or Foreclosure: If you have experienced either of these events then the amount of time that has passed since the BK or FC will have an affect on your mortgage interest rate. The more recent the BK or FC took place the higher an interest rate you will be offerred.

Income Documentation : The way in which you document your income with affect your interest rate. Lower documentation loans will cause a higher rate than that of a traditional full income documented loan.

Asset Verification: Generally, you will qualify for a lower mortgage rate if you can verify that you have liquid
assets to cover 3-6 months of mortgage payments (principle, interest taxes & insurance).

A stated income loan is a great loan for people who are W-2ed or self-employed. There are also programs that allow stated income and stated assets on the same loan. These programs help to preserve a borrower’s credit by getting them the funds that need when they need them.

Down payment: The amount you are willing to put down on the purchase of your home is a large determining factor in the interest rate you will receive. Although 100% financing may be available to you (depending on your credit score), you will have a lower interest rate if you are able to make a down payment of at least 5% of the purchase price.

Credit score: Your credit score will determine whether or not you will fit into conforming loan programs with the lower interest rates or into sub prime or ALT-A programs with higher interest rates.

What Is Interest In Arrears - A refinance will often reflect a higher payoff of a previous mortgage than expected. This is due to "Interest in Arrears". Interest in arrears is the interest that was due in the previous month.

When you payoff the mortgage you must pay the arrears as well.

Interest accumulates daily. The amount of interest per day is called "per diem". The final payoff includes principal balance and a certain amount of per diem interest dependent upon the date the lender receives the check.

Mortgage payments are done in arrears. When you rent and your payment is due on the first of April, that payment is so you can live in the place for the month of April. When you pay a mortgage on the first of April, you are paying for the interest from March 1st - 31st. When you pay May 1st's mortgage payment, that covers the interest for the entire month of April. This process is called paying mortgage interest in arrears.

Here is an example in order to make this concept simple. You make a mortgage payment on May 1st. That payment covers the interest on the loan that accumulated during the month of April. You then refinance your home and the refinance closes on May 25th. As part of the payoff of your old loan you will be required to pay the "arrearage", meaning the interest accumulated from May 1st to May 25th. This of course in addition to the balance due on the loan and any other assorted payoff fees that the lender may charge.

If you have failed to make your mortgage payment in several months, you should plan on your payoff coming in considerably higher because of this. Often times this can kill a deal if you are maxed out on your loan to value.