Frequently Asked Questions
When should I refinance?
It’s generally a good time to refinance when mortgage rates are 2% lower than the current rate on your loan. It may be a viable option even if the interest rate difference is only 1% or less. Any reduction can trim your monthly mortgage payments. Example: Your payment, excluding taxes and insurance, would be about $770 on a $100,000 loan at 8.5%; if the rate were lowered to 7.5%, your payment would then be $700, now you’re saving $70 per month. Your savings depends on your income, budget, loan amount, and interest rate changes. Contact Mid-Island Mortgage to help you calculate your options.
What are points?
A point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.
Should I pay points to lower my interest rate?
Yes, if you plan to stay in the property for a least a few years. Paying discount points to lower the loan’s interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front.
How can I get pre-approved for a mortgage?
1) Check your credit score – your credit score is an essential factor that is considered when assessing your eligibility for a mortgage. The higher your credit score is, the likelier you are to receive a better interest rate and more favorable loan terms.
2) Gather your financial documents – you’ll need to provide financial documents such as bank statements, tax returns, pay stubs and other documentation that verifies your income and assets. This sets you up for success in obtaining the right mortgage for you.
3) Find a lender – this is where Mid-Island Mortgage Corp. comes in. We do everything we can to ensure that you become pre-approved. Please contact us online, in-person or over the phone to start the simple pre-approval process.
4) Completing your pre-approval application – simply fill out a pre-approval application and provide your financial documents. These documents are needed to expedite the approval process. We use this information to understand your credit situation and determine just how we can help to find the right loan for you.
5) A decision on pre-approval will be made – once your application is submitted, Mid-Island Mortgage Corp. will review. Based on all the information and documentation provided, your pre-approval request will either be approved or denied. If approved, you will receive a pre-approval letter solidifying that you are a serious homebuyer.
Please note that pre-approval does not guarantee final approval for a mortgage, but it can give you a clear indication of how much you can afford to borrow to make your homebuying process as smooth as possible.
What is an APR?
The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the “true cost of a loan.” It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees. The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan. Because APR calculations are effected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask lenders to provide you with a loan estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. You can then delete the fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.
The following fees are generally included in the APR:
- Points – both discount points and origination points
- Pre-paid interest. The interest paid from the date the loan closes to the end of the month.
- Loan-processing fee
- Underwriting fee
- Document-preparation fee
- Private mortgage-insurance
- Escrow fee
The following fees are normally NOT included in the APR:
- Title or abstract fee
- Borrower Attorney fee
- Home-inspection fees
- Recording fee
- Transfer taxes
- Credit report
- Appraisal fee
What does it mean to lock the interest rate?
Interest rates can change from the day you apply for a loan to the day you close the transaction. If interest rates rise sharply during the application process it can increase the borrower’s mortgage payment unexpectedly. Therefore, a lender can allow the borrower to “lock-in” the loan’s interest rate guaranteeing that rate for a specified time period, often 30-60 days, sometimes for a fee.
What documents do I need to prepare for my loan application?
Below is a standard list of documents that are necessary to begin the qualifying process. Since every situation is unique, please know that it is not unusual for your mortgage professional to ask for additional documentation.
- Copy of signed sales contract including all riders
- Copies of your W-2 forms for the past two years
- Names and addresses of all employers for the last two years
- Letter explaining any gaps in employment in the past 2 years
- Work visa or green card (copy front & back), if applicable