Rates, Terms & Points

General Mortgage Information
Rates, Terms & Points
What is APR?
What are points?
How do I know what type of loan to get?
How do I know what my loan rate will be?

What is the difference between pre-qualifying and pre-approval?
What is the difference between a fixed-rate loan and an adjustable rate loan?
Do adjustable rate mortgages offer any protection against rising rates?
What can I do if I have a fixed rate loan, and interest rates go down?
What is Locking-In?
How much of a down payment will I need to buy a home?
How does a lender determine the mortgage amount I can afford?
What kind of materials are required in the loan process?
What is APR?

The annual percentage rate is a calculated rate of interest for a loan over its projected life. This rate includes the interest, all points (which are considered prepaid interest), mortgage insurance, and other charges associated with making the loan that the lender collects from the borrower.
The APR is calculated by a standard formula that all lenders use. This enables the borrower to comparison shop between lenders and/or loan products.


What are points?

One point is equal to one percent of your loan amount. Points are essentially prepaid interest. By paying points at settlement, you reduce the interest rate you pay on a loan. Paying more points at closing, will lower your mortgage loan rate and monthly mortgage payment.


How do I know what type of loan to get?


The type of loan you want depends on how long you plan on living in your home and what your desired monthly payment is. We offer several types of loans, including fixed and adjustable rate mortgages (ARMs). We even have a 0% down payment loan that enables you to purchase a home without any down payment required. For more information on the type of loan you desire, visit our Rates page or call one of our mortgage advisors at 510-623-8800.


How do I know what my loan rate will be? top

Your loan rate will vary based on the type, term and purpose of the loan, your credit history, loan amount, value of the property, the number of points you are willing to pay and our current mortgage rate, which may change several times daily.


What is the difference between pre-qualifying and pre-approval?


A pre-qualification consists of a discussion between you and a loan officer. The loan officer will collect information regarding your income, monthly debts, credit history and assets, and based on this information calculates an estimated mortgage amount for which you qualify. The pre-qualification is not a mortgage approval, but more an estimate on what you can afford.
A pre-approval, on the other hand, is a more comprehensive approach giving an actual decision on a home loan. Typically, a credit report is ordered electronically and is received within 30-60 seconds. This is an actual credit approval, and it carries with it some considerable benefits. From this information, a loan approval is given agreeing to finance a home and the total mortgage amount available to you.
What could be more comforting than the peace of mind that goes with knowing that your mortgage is fully approved?
You will have a greatly improved negotiating position when you are pre-approved for a mortgage. Sellers are more apt to negotiate with someone who already has a mortgage approval in hand. The pre-approval letter lets the seller know they are working with a serious cash buyer. A pre-approved buyer can also close on a property more quickly---another major consideration for a motivated seller. We strongly recommend it. Yes! Financial Services offers Free Loan Pre-Approvals and quick decisions.


What is the difference between a fixed-rate loan and an adjustable rate loan?


A fixed-rate loan has an interest rate that will never change during the term of your loan. If you choose a 30-year fixed rate loan at 7%, then 7% will continue to be your rate for the remainder of the loan. An adjustable rate loan has an interest rate that changes periodically. An adjustable rate mortgage (ARM) usually offers a lower initial interest rate than fixed-rate loans, however the loan rate and monthly payment will adjust higher or lower depending upon market conditions. The frequency of the interest rate and payment changes is stipulated in the loan contract. The amount of the first change for the ARM is based on an index (usually a treasure security) and a margin (a percentage over the start rate). Both are included in the loan note.
If you need help deciding whether a fixed or adjustable rate mortgage is the right choice for you, please consulting our mortgage advisors at 510-623-8800.


Do adjustable rate mortgages offer any protection against rising rates? top

Yes. ARMs and other variable rate of payment plans offer lower-than-market interest rates initially, but because they are tied to the interest rates of U.S. Treasury Bills or other indexes, interest rates later in the loan term may rise. However, many such loans offer built-in safeguards designed to minimize the effect of any rapid escalation in interest rates.
One such safeguard is the rate cap. Many ARMs include provisions for the maximum amount your rate can rise, both annually and over the life of the loan. For example, if your initial rate is 6.5%, the loan may include 1% annual and 5% lifetime caps...which means even if rates rise dramatically, you'll pay no more than 7.5% next year, 8.5% the following year and so on until a maximum rate of 11.5% is reached.
ARMs may also allow your rate to decrease when the index it is tied to goes down. As you might expect, decreases are usually capped as well.
A second protective device included in some ARMs is the payment cap. Under this provision, your monthly payments may rise by only a set dollar amount. The potential disadvantage of this type of cap is that it can slow or even reverse your equity build-up. If rates rise dramatically, you could actually wind up owing more principal at the end of the year than you did at the beginning.
Of course, ARM holders can also consider refinancing to a fixed rate loan after a few years. Some ARMs even include a provision for converting to a fixed rate after a set period of time.


What can I do if I have a fixed rate loan, and interest rates go down? top

When interest rates drop significantly as they have in recent times, the homeowner should investigate the financial advantages of refinancing. Essentially, this means taking out a new loan to pay off your existing loan.
refinancing may require paying many of the same fees paid at the original closing, plus origination fees. Most mortgage experts agree that if you can get a rate 2% less than your existing loan, and you plan on staying in your home for at least 18 months, refinancing is a good investment.


What is Locking-In?


You can insure the rate you want by Locking-In. When the rate of interest on a mortgage loan is "Locked- In", that loan rate is guaranteed at settlement. There is a deposit associated with Locking.


How much of a down payment will I need to buy a home? top

The amount of money that a buyer must put down at closing depends on the loan-to-value ratio -- the percentage of the property's appraised value or sales price (whichever is less) that a lender is willing to loan.
For example, if a property is appraised at $100,000 and the loan-to-value ratio is 90%, the lender would be willing to loan $90,000. The buyer's down payment is the remaining $10,000. Because the loan-to-value is a percentage, the higher the sales price of a house, the higher the down payment.
A down payment of 20% has been the benchmark for conventional financing, but today, many options are available, some requiring as little as 3% down. Fannie Mae, for one, has special financing availiable on their homes for first time buyers. If you qualify, you can get 3% down, and NO PMI, and Yes! Financial Services offers special 0% down programs.


How does a lender determine the mortgage amount I can afford? top

The three primary areas lenders examine in determining the size of mortgage you can handle include your monthly income, non-housing expenses, and cash available for down payment, moving expenses and closing costs.
The most common way lenders interpret these variables to estimate your mortgage capacity is the Percentage Method. Most lenders feel a family should spend no more than 28% of its income on housing costs, including the mortgage, insurance, and real estate taxes. Also, these housing costs plus your long-term debts (car loans, child support, minimum credit card payments, student loans, etc.) shouldn't exceed 36% of your income. Some mortgage companies have relaxed ratios to help you purchase the home of your dreams.
Although this is not a true method, you can use the Multiplier Method formula as a general rule of thumb to determine how much home you can afford. Most lender's guidelines allow a family to carry a mortgage that is two to three times its gross annual income (income before taxes and expenses are taken out). The amount of down payment and the type of mortgage (fixed or variable rate) will determine the precise ratio used by the lender.


What kind of materials are required in the loan process? top

When you apply for a mortgage, you will need to furnish information regarding your income, expenses and obligations. It will be very helpful and a time-saver, if you have the following items available:

    • Most recent two pay stubs
    • W-2's for the last two years
    • Last two months' bank statements
Long-term debt information (credit cards, child support, auto loans, installment debt, etc.)