Homebuying FAQs
Interest rates can change based on factors like inflation, the pace of economic growth, and the Federal Reserve policy. Over time, inflation has the biggest 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 causes 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.
An adjustable-rate mortgage, also known as an "ARM,” is a loan type with an interest rate that is not fixed. These loans typically have lower interest rates than most fixed-rate loans, but the monthly payment can go up or down accordingly after an initial period. An ARM is a good choice for people with an income that is expected to increase in the future or for those who plan only to be in their purchased home for a short period of time.
Here's some detailed information explaining how ARMs work:
Adjustment Period
Most ARMs have a fixed interest rate and monthly payment for an initial time period, such as one year, three years, five years, or seven years. After the initial fixed period, the interest rate can change annually.
Index
ARM interest rate changes are driven by changes in an index rate. If the index rate increases, your interest rate and monthly payment will as well. You can monitor interest rate indices in the Wall Street Journal to get a sense of what is happening in the market.
Margin
Interest rates on an ARM are determined by what’s called margin, or a pre-disclosed amount that is added to the index. Comparing lenders’ margins is a good way to predict which lender may have more favorable conditions for your mortgage since margin is used to calculate the interest rate you will pay in the future.
Interest-Rate Caps
Interest-rate caps restrict how much your rate can go up or down after an initial period. There are two types of interest-rate caps. Periodic or adjustment caps limit how much a rate can move from one period to the next, while overall or lifetime caps dictate how much a rate can change over the course of the loan. Norry Bank’s ARMs all have both adjustment and lifetime caps.
Negative Amortization
Negative amortization occurs if a monthly payment is reduced to an amount that is less than what’s required to pay interest due. A loan with negative amortization could mean you end up owing more than you originally borrowed. Norry Bank does not offer any ARMS that allow for negative amortization.
Prepayment Penalties
Unlike some other lenders, we never penalize customers for paying off their ARM early.
Contact a Loan Officer
If you have any questions, we encourage you to contact one of our Loan Officers. Our team is happy to discuss the entire process, including topics such as down payments, closing costs, and fees.
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Discount points are a form of interest and a way to lower your monthly payment by paying more upfront at closing. Here’s how to know if discount points make sense for you:
- Compare the cost of discount points to how much you’ll save with a lower rate.
- Divide the total discount cost of the discount points by the savings in each monthly payment. You will see how long it will take before you start seeing a cost benefit from paying more upfront. If it will take longer to recoup your money than you plan to stay in the home, discount points may not be a good idea.
We also have a discount points calculator that we encourage you to try.
In compliance with the Truth in Lending Act, all financial institutions must disclose the APR when advertising a rate. However, APRs can be misleading since a rate doesn’t tell the entire cost story and doesn’t include all closing fees, including appraisals and document preparation.
APRs should be used as a guideline when shopping for loans. Especially if you’re selecting an adjustable-rate mortgage, be sure to look at total fees, future rate adjustments, and mortgage length.
Like many aspects of banking, mortgage interest rates can be hard to predict. If rates are on an upward trend, you should consider locking in your rate. But before you decide to lock, make sure that you can close within the lock period. When rates appear to be dropping, some customers take the risk of letting the rate “float” instead of locking. Your Loan Officer can provide you more information on the risks and benefits of floating your rate.
Owning your home outright in 15 years rather than 30 can result in cost savings in the long run since you will pay less than half the total interest cost of a traditional 30-year mortgage. However, monthly mortgage payments on a 15-year mortgage will be higher than that of a 30-year loan. This is why many homebuyers opt for a mortgage with a longer term.
Who Should Consider a 15-Year Mortgage?
Younger homebuyers with high incomes tend to be interested in 15-year fixed rate mortgages so that they can pay off the home before taking on big expenses later in life, like kids starting college or purchasing a vacation home. Other homebuyers with established careers who want to own their home before they retire may also be interested in a 15-year mortgage.
Advantages of a 15-Year Mortgage
There are three main advantages to a 15-year fixed rate mortgage:
- You own your home in half the time it would take with a traditional 30-year mortgage.
- You save more than half the amount of interest of a 30-year mortgage.
- Rates are usually slightly lower than with 30-year mortgages.
Possible Disadvantages of a 15-Year Mortgage
- You can expect higher monthly payments, typically between 10 to 15% more than with a 30-year loan.
- Paying less total interest has tax implications when it comes to deductions.
Compare Them Yourself
Norry Bank’s "How much can I save with a 15-year mortgage?" calculator can help you decide which loan term is best for you.
None of Norry Bank’s loan programs have prepayment penalties. You’re free to pay off your mortgage as you wish with no added charges. The absence of prepayment penalties also makes refinancing a more attractive potential option in the future.
General Statement
Because interest rates are subject to move without notice, locking in a rate protects you only during the period from when your rate locks to when the period expires.
Lock-In Agreement
Lock-in agreements will specify the number of days that the loan’s interest rate and discount points are guaranteed. Both the lender and the homebuyer agree to honor the conditions of the lock.
When Can I Lock?
To lock in your rate, please contact your Loan Officer to discuss your rate lock options.
Fees
We do not charge a fee for locking in your interest rate.
Lock Period
Most loans have a 60-day lock. Once you lock, your loan must close and disburse within that period.
Lock Changes
Once we accept your lock, your loan is committed into a secondary market transaction, where home loans and servicing rights are bought and sold between lenders and investors. This process does not allow us to renegotiate lock commitments.
There are many different fees involved in closing, such as the appraisal fee, title charges, and state and local taxes. We encourage you to speak with a Loan Officer early in the process about what to expect so that there are no surprises.
To assist you in evaluating our fees, we've grouped them as follows:
Third-Party Fees
- Appraisal fee
- Credit report fee
- Settlement or closing fee
- Survey fee
- Tax service fees
- Title insurance fees
- Flood certification fees
- Courier/mailing fees
Note that all fees are not applicable to all mortgage loans. Minor variances in third-party fees may occur from lender to lender due to existing relationships or preferred pricing. Some lenders may also absorb certain fees as a courtesy to the homebuyer.
Taxes and Other Unavoidables
- State/local taxes
- Recording fees
Typically, you’ll have to pay these fees regardless of the lender you choose. A lender that doesn’t include these fees in an estimate likely has not done the research to provide accurate expectation of closing costs.
Lender Fees
Lender fees are a category of fees that you should compare as you shop between lenders. You’ll find a wide variation between lenders on fees such as discount points, document preparation, and underwriting.
Required Advances
Prepaying some items at closing that will be due in the future is common. Interest due at closing is one type of required advance you’ll have to pay. The first year of homeowner’s insurance will also need to be paid in advance.
Title insurance is for your protection as a homeowner. A title insurance company’s function is to ensure that no individual or government entity has any right, lien, claim, or encumbrance on the property you are buying.
An owner’s policy covers you as the homebuyer, while a lender’s policy covers the lending institution over the life of the loan. There is a one-time premium for both policies if the loan is for a purchase. Homeowners refinancing their loan can use their existing owner’s policy. If any claim covered under your policy is filed against your property, the title company pays for your legal defense.
The difference between the loan amount and the purchase price of a house is referred to as a down payment. A 20% down payment was once the standard when purchasing a home, but many homebuyers now pay 5% down or less. There are many different loan options with varied down payment requirements. Completing the online application is the best way to determine the loan amount we can offer.
Private mortgage insurance, also known as PMI, is what makes it possible for homebuyers to purchase a property with less than a 20% down payment. The insurance protects the lender against the additional risk associated with low down payment lending. Your monthly PMI premium is based on loan-to-value ratio, type of loan, and the amount of coverage that the lender requires. Lenders automatically remove PMI once the loan balance has been reduced to 78% of the original property value. If you have any questions about when your mortgage insurance could be cancelled, please contact your Loan Officer.