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How Do Interest Rates Affect My Purchase Power?
How Do Interest Rates Affect My Purchase Power? 1024 536 patrickgardner
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Nothing affects a home’s affordability more than interest rates. After all, we live with the monthly payment, not the amount of the loan. The higher your mortgage rate is, the higher your monthly payments are going to be.

Buying power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows the impact that rising interest rates would have if you planned to purchase a home within the national median price range while keeping your principal and interest payments between $1,850-$1,900 a month.

Buyers Purchasing Power
4.75 $2,086 $2,034 $1,982 $1,930 $1,878
4.50 $2,026 $1,976 $1,926 $1,874 $1,824
4.25 $1,968 $1,919 $1,869 $1,820 $1,771
4.00 $1,910 $1,862 $1,814 $,766 $1,719
3.75 $1,852 $1,806 $1,760 $1,714 $1,667
$400,000 $390,000 $380,000 $370,000 $360,000
-2.5% -5% -7.5% -10%

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000).

Act Now! Rates are at historical lows to help make the home you want accessible.


Principal and interest payments rounded to the nearest dollar amount. The information shown above is for demonstrative purposes only and does not include any additional fees like property tax, insurance, mortgage insurance, or HOA dues. This is an advertisement and not a guarantee of lending.

What is mortgage insurance and how does it work?
What is mortgage insurance and how does it work? 1024 536 patrickgardner
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Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. 

Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home will need to pay for mortgage insurance. Mortgage insurance is also typically required on FHA and USDA loans. If you are required to pay mortgage insurance, it will be included in your total monthly payment that you make to your lender, your costs at closing, or both.

There are several different kinds of loans available to borrowers with low down payments. Depending on what kind of loan you get, you’ll pay for mortgage insurance in different ways:

Conventional Loan

If you get a conventional loan, your lender may arrange for mortgage insurance with a private company. Private mortgage insurance (PMI) rates vary by down payment amount and credit score but are generally cheaper than FHA rates for borrowers with good credit. Most private mortgage insurance is paid monthly, with little or no initial payment required at closing. Under certain circumstances, you can cancel your PMI.

Federal Housing Administration (FHA) Loan

If you get a Federal Housing Administration (FHA) loan, your mortgage insurance premiums are paid to the Federal Housing Administration (FHA). FHA mortgage insurance is required for all FHA loans. It costs the same no matter your credit score, with only a slight increase in price for down payments less than five percent. FHA mortgage insurance includes both an upfront cost, paid as part of your closing costs, and a monthly cost, included in your monthly payment.

If you don’t have enough cash on hand to pay the upfront fee, you are allowed to roll the fee into your mortgage instead of paying it out of pocket.  If you do this, your loan amount and the overall cost of your loan will increase.

US Department of Agriculture (USDA) Loan

If you get a US Department of Agriculture (USDA) loan, the program is similar to the Federal Housing Administration, but typically cheaper. You’ll pay for the insurance both at closing and as part of your monthly payment. Like with FHA loans, you can roll the upfront portion of the insurance premium into your mortgage instead of paying it out of pocket, doing so increases both your loan amount and your overall costs.

Department of Veterans’ Affairs (VA) Loan

If you get a Department of Veterans’ Affairs (VA)-backed loan, the VA guarantee replaces mortgage insurance, and functions similarly. With VA-backed loans, which are loans intended to help service members, veterans, and their families, there is no monthly mortgage insurance premium. 

Second Mortgage

When using a second “piggyback” mortgage,the loans are structured differently.  For example, the same borrower might pay for the home with: a 10 percent down payment, 80 percent main mortgage, and a 10 percent “piggyback” second mortgage. In this scenario, the borrower is still borrowing 90 percent of the value of the home, but the main mortgage is only 80 percent.  The “piggyback” second mortgage typically carries a higher interest rate, which is also often adjustable. 

Contact us if you have any questions or your like to know what you what your financial situation looks like!

Source: Consumer Financial Protection Bureau (CFPB)

What’s the Point?
What’s the Point? 628 419 patrickgardner

What's the Point?

Your financial house is in order and you’re ready to make your dream of homeownership a reality. Now it’s time to get a mortgage. So what are these so called “points” and is there a point in paying them?

A “point” equals one percent of the loan. Discount points are used by borrowers to buy down their mortgage interest rate. It’s essentially an upfront interest payment to lock in a lower interest rate on your fixed-rate mortgage. So if you are borrowing $200,000, paying one discount point would mean paying $2,000 upfront at closing – but it may end up saving you more in interest payments over the life of the loan.

Deciding whether to pay more points for a lower interest rate or pay less/no points and pay a higher interest rate depends on your personal circumstances. They include factors like how long you expect to stay in the home and whether you can afford to make an upfront payment.

Interested in seeing how paying extra points might lower your rate? At Vellum we are experts in assisting you with your overall financial picture. Ask your Vellum Loan Officer for more details!

Source: Freddie Mac

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Should You Refinance to a Shorter-Term Loan?
Should You Refinance to a Shorter-Term Loan? 1024 683 patrickgardner

Should You Refinance to a Shorter-Term Loan?

New homebuyers often choose to take out longer term mortgages such as a 30 year term mortgage on their new homes due to the security and peace of mind that a consistent monthly mortgage payment provides. However, a 30 year term can be really long time! It is especially long when thinking about things like putting kids through college, saving for retirement or all the fun surprises life likes to throw your way.  

Paying off your mortgage sooner will free up a lot of cash that can be used for other upcoming commitments. It also means you will save money in interest over the life of your loan because you are paying down your mortgage significantly faster. But can you really afford to do it?

You have a steady and reliable income, you may be a prime candidate for mortgage refinancing because you can afford the bump in expense that a shorter term loan will most likely bring.

For example, a 30 year loan of $100,000 at 4.5% would cost roughly $506 per month (principal and interest). A 15 year loan at the same rate would be approximately $765. For home owners who currently already have some extra disposable income at the end of the month the $259 increase between the two terms would be manageable. Keep in mind, a higher debt to income ratio would be required on the 15-year term because of the higher monthly payments.

Refinancing a home for a shorter term makes sense for those homeowners who have an interest rate of 4% or higher and who have not refinanced in the past six months. It also would make sense for people who are looking to build equity in their home sooner.

Is there an option for homeowners who don’t meet the criteria to refinance? For those homeowners who are afraid of committing to a larger monthly payment or who can’t meet the new income to debt ratio that the shorter term requires, they can still get the same benefits by consistently paying extra on the principal of their mortgage. Another option might be a variety of shorter terms such as 20 years instead of 15 or 10.

There are many things to consider when refinancing a home. We are happy to take a look at your current financial picture and see what option would best work for you and your long term goals.

The post Should You Refinance to a Shorter-Term Loan? appeared first on Vellum Mortgage.