Mortgage Blog



When you first bought your house, you may have been asked by a lender whether you wanted to escrow your taxes and insurance or not.  Usually to the new homebuyer, you usually don't know what that means.  If you have been escrowing for a number of years, you undoubtedly know by now that your mortgage payment has gone up. Reason being, once per year, your mortgage servicer is required by federal law to update your account and make sure that they are not over collecting monies from you. Is there is a significant overage, they must return the overage to you.  This doesn't usually happen.  What normally happens is that taxes go up, homeowners insurance usually goes up. You just forward the bills to your servicer, they pay them, and every once in a while your payment goes up 20 or 30 dollars.  You pay it and life goes on and one day you realize that your taxes have gone up 800 dollars and your homeowners 360 bucks. That is the typical experience of escrowing.

On the other hand, for those who don't, or do not wish to escrow, a different situation often plays out. Once you bought your house, you paid the original tax bill and bought a homeowners policy with a check. Hopefully you set out with some type of plan to budget 1/12 of those bills in a special account so that when next years bills come do, you can just withdrawal the money, pay the bill and all is well. What sometimes happens is the "out of sight, out of mind" theory, followed by the "didn't I just pay that".   Yes, you did...last year.  Unless you have iron discipline, it can be challenging to try and save the money each year.  Even if you are successful for a while, things come up. It's there to dip into for car tires, home maintenance, etc all with the good intention of replacing it as soon as you can because taxes arent do for a while yet.

My final word on this one, from my own experiences as both a homeowner who has done both and as a lender is, "When in doubt, go the escrow route." 

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Posted by Jill Kohler on October 25th, 2016 2:18 PM

Fixed versus adjustable rates

With a fixed-rate loan, your payment stays the same for the entire duration of the mortgage. The amount of the payment that goes to principal (the loan amount) increases, but your interest payment will decrease accordingly. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally monthly payments for a fixed-rate loan will increase very little.

Your first few years of payments on a fixed-rate loan are applied mostly to pay interest. The amount applied to principal increases up slowly each month.

You might choose a fixed-rate loan in order to lock in a low interest rate. People select fixed-rate loans when interest rates are low and they want to lock in at this lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can help you lock in a fixed-rate at the best rate currently available. Call Net Equity Financial Mortgage at (215)741-3131 to discuss how we can help.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs are normally adjusted every six months, based on various indexes.

Most ARM programs have a "cap" that protects you from sudden monthly payment increases. Some ARMs can't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" which ensures your payment can't go above a fixed amount over the course of a given year. Additionally, the great majority of ARM programs have a "lifetime cap" — this means that your rate will never go over the cap amount.

ARMs most often feature the lowest, most attractive rates toward the start. They guarantee that interest rate for an initial period that varies greatly. You've likely heard of 5/1 or 3/1 ARMs. For these loans, the initial rate is fixed for three or five years. It then adjusts every year. These loans are fixed for a certain number of years (3 or 5), then adjust after the initial period. Loans like this are best for people who expect to move within three or five years. These types of ARMs most benefit borrowers who plan to move before the initial lock expires.

Most borrowers who choose ARMs choose them because they want to get lower introductory rates and do not plan to stay in the home longer than the initial low-rate period. ARMs can be risky when housing prices go down because homeowners can get stuck with increasing rates when they can't sell or refinance at the lower property value.

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Posted in:General and tagged: mortgageloanParates
Posted by Jill Kohler on October 12th, 2016 5:40 PM


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