Homeownership is a tremendous achievement! However, as exciting as this milestone is, one decision looms large: selecting a mortgage to suit your needs. Among the choices available, adjustable and fixed-rate mortgages stand as pillars in the mortgage landscape. Not sure which is right for you? Join us in exploring the intricacies of adjustable vs fixed-rate mortgages so you can make a well-informed decision. 

Key Differences Between Adjustable vs Fixed-Rate Mortgages 

What is an Adjustable-Rate Mortgage (ARM)? 

An adjustable-rate mortgage, or ARM, is a mortgage with an interest rate that adjusts periodically, usually every one to five years. The initial fixed-rate period can vary from one month to 10 years, depending on the terms of the loan. During this time, the interest rate remains the same, but after the initial period, the rate can adjust—up or down—based on market conditions. 

The benefit of an adjustable vs fixed-rate mortgage is that adjustable-rate mortgages typically have lower initial interest rates than fixed-rate mortgages. In the first few years of the loan, the monthly mortgage payment is lower, which can make homeownership more affordable. However, when the interest rate adjusts, so does the monthly payment. This means the monthly payment could increase if the interest rate goes up, causing homeowners to pay more overtime. 

What is a Fixed-Rate Mortgage (FRM)? 

A fixed-rate mortgage, or FRM, is a mortgage that has a fixed interest rate for the entire term of the loan, usually 15 or 30 years. The benefit of a FRM is the interest rate is locked in for the duration of the loan, which creates stability and predictability for homeowners. This means homeowners can budget accordingly and not worry about their monthly payment changing over time. 

The downside to a FRM is that the initial interest rate is usually higher than an ARM, which means the monthly payment will be higher. However, over time, if interest rates rise, homeowners with an FRM are protected from any increase in their mortgage payment. That said, if interest rates go down in the future, you won’t be able to take advantage of them unless you refinance your mortgage.   

When considering adjustable vs fixed-rate mortgages, think about how you’ll be impacted both short and long-term.

Factors to Consider When Choosing Between Adjustable vs Fixed-Rate Mortgages 

There are several factors to consider when choosing between adjustable and fixed-rate mortgages. One of the most important factors is your financial situation, including your income, debts, and credit score. Assessing your risk tolerance and future goals is also important. If you plan on owning your home for a long time, an FRM may be the best option. However, if you plan on moving in a few years, an ARM may be more suitable. 

To determine which option is best for you, it’s important to evaluate your situation and goals. Consider how much you can afford to pay each month, how long you plan on living in your home, and whether you’re prepared for the possibility of a higher monthly payment. While both types of mortgages have their pros and cons, ultimately the decision between an ARM and FRM will depend on your individual situation. 

Adjustable or Fixed-Rate Mortgages? Millennial Title is Here to Help 

When choosing between an adjustable and fixed-rate mortgage, it’s important to weigh the benefits and drawbacks of each based on your financial situation and goals. An ARM may be a good option for those who need a lower initial monthly payment, but are willing to accept the potential risks of a fluctuating interest rate. On the other hand, an FRM may be a better option for those who value stability and predictability in their monthly payments. Regardless of which type of mortgage you choose, make sure you have a team you can trust to support you.  

When you choose Perpetual Title, our staff is here to handle the closing of your new loan. We take care of everything: from ensuring the prior mortgage is paid-in-full and released to making sure the new mortgage is properly recorded. With our expertise and attention to detail, you can have peace of mind knowing the closing process will be stress-free and efficient. We are here to support you every step of the way, making your journey an easy and rewarding experience. 

Looking for more valuable information? Learn the steps to ensuring a successful home appraisal—which results in a lower interest rate for your mortgage—with our useful checklist! 

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What is a Closing Disclosure? 

A Closing Disclosure is a five-page document which outlines the final terms of your mortgage loan. It includes important information such as the loan amount, interest rate, monthly payments, and other closing costs. 

This document provides transparency and clarity to homebuyers about the costs from the lender associated with their mortgage loan before they go through with the purchase. This saves them from any surprises or hidden fees that may arise during the closing process.  

What to Look for on Your Closing Disclosure 

Under federal law, homebuyers must receive the Closing Disclosure at least three business days before the closing date. This gives homebuyers ample time to review the document and ask any questions they may have before finalizing the mortgage loan. Here are some of the key things to carefully look through as you make sure the Closing Disclosure is correct and matches your agreed upon mortgage loan application. 

1. Closing and Transaction Information: This is located at the top of page one and will include the names of the parties involved in the transaction and where the property is located. Double check that there are no spelling errors in your name, and that the property address is correct.  

2. Loan terms: This section includes important information such as the loan amount and the interest rate.  

3. Projected payments: This section outlines your estimated total monthly payments—including principal and interest—as well as any additional costs such as mortgage insurance or property taxes.  

4. Costs at closing: This section includes closing costs such as loan origination fees, title insurance, and appraisal fees. 

Perpetual Title Tip: Check out the American Land Title Association’s Closing Disclosure example for a visual guide on what to expect.  

What if There are Errors or Discrepancies in the Closing Disclosure? 

If you notice any issues on your Closing Disclosure, contact your lender immediately to get them corrected. It may delay your closing if there is a material change in the costs.  It’s crucial if you want to avoid issues down the road. If material changes need to be made, you’ll have three additional days before closing day to review the revised document. 

Millennial Title is Here to Help 

Understanding the Closing Disclosure is crucial for a successful closing day. By reviewing the document carefully and asking any questions you may have, you can be sure you’re fully informed about the costs associated with your mortgage loan. If you have any questions or concerns about the Closing Disclosure or the homebuying process, don’t hesitate to reach out to Perpetual Title for assistance. 

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What is a Proprietary Reverse Mortgage? 

A proprietary reverse mortgage is like other types of reverse mortgages in that it is a loan that converts your home’s equity into cash. However, what makes a proprietary reverse mortgage unique is that it is offered and insured through private lenders. Because of this, the loan isn’t restricted by Federal Housing Administration (FHA) lending limits, meaning you can access more funds without paying upfront fees; hence, they’re often referred to as jumbo reverse mortgage loans. 

How Does a Proprietary Reverse Mortgage Work? 

To qualify for a proprietary reverse mortgage, you must be at least 62 years old, and your main residence must have enough home equity established to meet the lenders requirements. Once you’ve successfully acquired a loan, it will first pay off your current mortgage. Any remaining proceeds are then provided to you in a non-taxable lump sum, which you have the freedom to use on anything. 

What are the Benefits of a Proprietary Reverse Mortgage?

There are a few different types of reverse mortgages available to homeowners, meaning choosing the best option for you can be confusing. Establishing what benefits most align with your wants and needs can make the decision clearer. Here are the advantages you can expect with a proprietary reverse mortgage: 

A Greater Amount of Funds: Proprietary reverse mortgages aren’t restricted by FHA lending limits, meaning you can receive larger loan amounts compared to other reverse mortgages.  

No Strict Guidelines for How You Use It: Unlike a single-purpose reverse mortgage, proprietary reverse mortgages give you the freedom to use funds from your loan however you wish. This means your payments can go toward home renovations, paying off student debt, medical bills, living expenses, travel, and more.  

Freedom From Upfront and Monthly Mortgage Payments: Other types of reverse mortgages typically charge an upfront mortgage fee, but this option avoids this issue. Instead of paying the 2% fee on a HECM loan for a $400,000 home, a proprietary reverse mortgage allows you to save $8,000 you would otherwise lose. Additionally, this loan pays off your existing mortgage and does not require you to make monthly payments on it until it comes due. Just make sure to continue to pay financial obligations such as property taxes and homeowners insurance.   

A Proprietary Reverse Mortgage is in your Reach

With proprietary reverse mortgages, the options are limitless. Not constrained by FHA limitations, flexible in how it’s used and lenient on mortgage payment requirements, this loan is a wonderful option for many homeowners over the age of 62 looking for extra income.  

Interested in learning more about these loans and more? Millennial Title is well versed in various reverse mortgage options. Contact the team at Millennial Title and get help finding a solution that’s right for you. 

The post What You Need to Know About Proprietary Reverse Mortgage first appeared on Perpetual Title.

What is a HECM Loan?

A HECM loan—or Home Equity Conversion Mortgage—is a reverse mortgage that leverages the home’s equity as supplemental income, which can then be used at the borrower’s discretion to take care of living expenses, medical bills, and more. A HECM loan is unique from other types of reverse mortgages because it is the only one insured by the Federal Housing Administration (FHA) —meaning it offers the most protection to borrowers. Additionally, this type of loan is nonrecourse; therefore, you’ll never owe more than what your home is worth even if your home’s equity drops after receiving the loan.

HECM loan amounts are based upon:

• Age of the youngest borrower or eligible non-borrowing spouse
• Current interest rates
• The home’s appraised value
• The HECM FHA mortgage limit, which is currently set at $1,089,300

Eligibility

Offering the most protection to borrowers and the most spending autonomy, it’s no wonder that the HECM loan is one of the most popular choices for borrowers. Furthermore, HECM loans are not dependent upon credit score, offering financial requirements that are much more slack than other loans. That being said, there are a few requirements that must be met to receive the benefits of this loan.

To be eligible for a HECM loan, the borrower must:

• Be 62 years old or older
• Use the appraised property as their primary residence
• Have their property approved by the U.S. Department of Housing and Urban Development as a 2–4-unit single-family home, manufactured home, or condominium.
• Fully own the property or have a small mortgage balance
• Keep up with all federal debt payments
• Be able to pay all upfront and ongoing costs, including the required HECM counseling

For retirees 62 years or older, HECM loans provide many financial benefits.

How to Apply

The application process for a HECM loan begins by going through an FHA-sponsored bank. To find a bank that meets FHA standards, the U.S. Department of Housing and Urban Development provides an easy-to-use lender list. Follow these simple steps to locate an approved lender near you:

1. Go to the HUD Lender List Search
2. Select your state, county, and zip code (you can also choose the radius it will search within)
3. Scroll down
4. Uncheck “Title 1 Property Improvement”
5. Check “HECM”
6. Click “Search

Millennial Title is Your Partner for HECM Loan Closings

Highly protected, accessible, and flexible, a HECM loan is an excellent source for supplemental income. At Perpetual Title, our experienced staff works closely with FHA-approved lenders to ensure your loan closing is completed as smoothly as possible. Contact Perpetual Title today to take your first steps towards acquiring a HECM loan.

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Upfront Costs

HECM Counseling

To acquire a reverse mortgage, borrowers are required to receive counseling from an HECM counselor who has been approved by the U.S. Department of Housing and Urban Development. While a counseling agency may charge you a reasonable fee, they are required to address your personal financial situation and cannot charge you a fee you’re unable to afford.  

 Origination Fees

Lenders typically charge an origination fee to process, underwrite, and close your loan. According to Investopedia, an origination fee is typically 0.5% and 1% of the loan amount. It is also useful to note that origination fees may not exceed $6,000. 

Appraisal Fees

When preparing to borrow a reverse mortgage loan, you’ll want to be prepared to have your home appraised by an appraisal management company. This step’s cost will vary depending on conditions such as the size and age of your home. 

Initial Mortgage Insurance Premium

An initial Mortgage Insurance Premium—initial MIP— is paid to the Federal Housing Administration and guarantees you will receive your expected loan advances. According to the U.S. Department of Housing and Urban Development, the initial MIP will be 2%.  

Third Party Closing Costs

Fees for loan recording, credit checks, and title insurance will need to be paid before finalizing your reverse mortgage. To keep these costs organized, your lender can provide you with a comprehensive breakdown of all the charges within your closing disclosure.  

Ongoing Costs

Annual Mortgage Insurance Premium

After your initial mortgage insurance premium payment, you’ll begin making an annual payment to your MIP. These payments will be 0.5% of the outstanding mortgage balance. It is also possible to roll MIP costs into your reverse loan, meaning it will accrue interest for the life of the loan. 

Servicing Fees

Lenders are responsible for sending your account statements, distributing your loan proceeds, and helping you meet your loan requirements. Thus, they’ll need to be paid servicing fees. This will cost no more than $30-$35 depending on if the interest rate adjusts monthly.  

Property Charges

To qualify for a reverse mortgage, the Federal Housing Administration must be able to trust that you can pay long-term property costs. This includes regular payments to charges such as homeowners insurance, property taxes, and—depending on your location—hazard insurance premiums. 

Be Prepared for Reverse Mortgage Closing Costs

If you want to use your home’s equity to your benefit, it’s time to apply for a reverse mortgage. Knowing what closing costs to expect will help you be better prepared to qualify for the loan. Need help taking the first step? Perpetual Title’s knowledgeable team is more than happy to answer any questions you may have regarding reverse mortgages or any other areas of our expertise.   

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What is a Reverse Mortgage?

Unlike a traditional mortgage where you pay the bank monthly for your home, a reverse mortgage is backed by using your home as a security. If you have any outstanding mortgage payments, the remainder of it will be paid off by the reverse mortgage. After that, the remaining funds go to the borrower. To attain a reverse mortgage, there are a few requirements to consider:  

• The borrower must be aged 62 years or older (55 in some states). 
• The home’s equity must be sufficient for the loan. Typically, 50% of accumulated equity is required.  
• Property taxes, homeowners insurance, and basic home maintenance costs must be paid. 
• The property in question must be the primary residence for the borrower for at least a year. 

The 3 Types of Reverse Mortgages

The next step after determining if you are eligible to receive a reverse mortgage loan is choosing what kind to apply for. With three choices to choose from, each option has a unique set of advantages that can aid you in determining which will work best for you. 

Home Equity Conversion Mortgage (HECM)

Home equity conversion purchase offers the most protection for borrowers because it is insured by the Federal Housing Administration (FHA). These loans are nonrecourse, meaning the borrower never owes more than what their home is worth, even if the value drops after receiving the loan. HECM loans also have slacker financial requirements than other loans such as not being dependent upon credit score. HECM’s offer the option of lump sum payments through a fixed rate or adjustable rates where equity can also be turned into lump sums, monthly distributions, a line of credit, or a combination of each. Money can then be used on anything the borrower chooses such as paying for school tuition or debt, taking care of medical expenses, supplementing income, and more.  

Proprietary Reverse Mortgage 

Proprietary reverse mortgages are similar to HECM loans in that they can be used for whatever expenses you wish. However, unlike the conventional institutions HECM loans use, proprietary reverse mortgages are provided by private lenders, meaning they are exempt from FHA regulations and paying mortgage insurance. Therefore, lenders can offer amounts higher than the federal limit, which is why these loans are also called jumbo reverse mortgages. For those who want autonomy over how they use their loan without having to deal with federal restrictions and insurance, higher loan limits, or a combination, a proprietary reverse mortgage may be the right choice.  

Reverse for Purchase Mortgage

Also called a HECM for purchase, a reverse for purchase loan is unique in that its sole purpose is to be used to purchase a home through a single transaction. Once the borrower places a down payment of roughly 40-50% on the home they wish to buy, the reverse for purchase loan immediately resolves the payment by offering to loan up to 50-60% against the home equity. Thus, the slate is wiped clean, and the home is purchased in a single transaction. Those looking to move closer to family, downsize, or want to maximize on their purchasing power during homebuying would be well suited a reverse for purchase loan.  

Take Advantage of Reverse Mortgages

Whatever reverse mortgage you think is right for you, we want to help find the resources you need to take advantage of the opportunity. Perpetual Title is uniquely suited to assist you by offering a team of experienced professionals across the country that can help you navigate each step of the process. Want to learn more about our lending partners? Click here to learn more as well as discover Perpetual Title’s other vast areas of expertise. 

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What is a Warranty Deed?

When a property is sold, a warranty deed is a legal document that is used to transfer ownership of the property from the seller to the buyer. A warranty deed, provided by the seller, guarantees to the buyer that the property is owned by the seller, free and clear of any title defects, and does not have any outstanding debts, including mortgages. This document is issued as part of the title search and includes details such as the address, description of the property, information about the parties involved, and the date of the transaction.

Understanding Deeds of Trust and Mortgages

A Mortgage is an instrument pledging real property for a loan. This is a two-party instrument: The mortgagor (debtor) grants the mortgage to the mortgagee (lender). A mortgage explains the details of the loan including the principal balance, maturity date, and interest rate information. Mortgages can be foreclosed judicially or nonjudicially, though they are usually foreclosed judicially.

Deed of Trust is a three-party instrument: The grantor (debtor, mortgagor) gives Deed of Trust to a trustee as security for a debt owed to the beneficiary (a.k.a lender, mortgagee). Like a mortgage loan agreement, the deed of trust explains the details of the loan including the principal balance, maturity date, and interest rate information. The trustee is given the power of sale allowing the trustee to foreclose nonjudicially.

With a deed of trust or a mortgage, they can only be released after satisfaction by the beneficiary or mortgagee. However, a few states have granted the power to release to the trustee.

This map shows where a deed of trust, mortgage loan, or both are accepted.

Deed of Trust, Mortgage, and Warranty Deed: Key Difference

Depending on where you are purchasing a home, you may encounter one or all these documents, however, each of them plays an integral role in the home buying process with vastly different purposes.

A deed of trust or mortgage only secures that Promissory Note of the lender against the property. A warranty deed conveys the legal title to the buyer and warrants that a property is owned and able to be sold without any encumbrances and liens. A warranty deed is only used in a purchase transaction whereas a deed of trust and mortgage can be used in a purchase or refinance.

If you have additional questions regarding warranty deeds, deeds of trust, mortgages, or any other paperwork associated with the home buying and selling process, contact the team at Perpetual Title today.

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Mortgage Points Explained

Mortgage points are fees that you pay the lender to reduce the overall interest rate on your mortgage. These points are priced as a percentage of the cost of your mortgage and will reduce your interest rate by a certain amount. Buyers can choose to purchase mortgage points to lock in a lower interest rate and pay less on the loan over time. So, the more mortgage points purchased, the more you save on the interest rate of the loan.

How do Mortgage Points Work?

In the mortgage closing process, your lender may offer you the option of paying for points in exchange for paying down your interest rate. Each mortgage point costs 1% of the loan. So, 1 point on a $100,000 loan is equal to $1,000, 1 point on a $200,000 loan is $2,000, and so on. Lenders may also offer the option to buy point fractions such as ½ point for $500 on a $100,000 loan. These points then reduce your interest rate by a specific percentage and can vary from lender to lender. One lender may offer a 0.25% interest rate reduction for each point which can reduce the interest rate from 4.50% down to 4.25%. So, the more points, you purchase, the cheaper your interest rate.

While mortgage points decrease overall interest on your mortgage loan, it can also lead to increased savings over the course of the loan term. Since mortgage points decrease interest, points will also decrease your monthly mortgage payment.

For example, a 30-year mortgage loan of $200,000 with 4.5% interest will make the monthly payment $1,013.37. In this scenario, a mortgage point costs $2,000. If you purchase a single mortgage point at $2,000 in exchange for a 0.25% APR decrease, your monthly payment will then fall to $983.88. While that $29.49 savings may not seem like much, the cost of the mortgage point is paid off after 5 years, 8 months, and will save you $10,616.40 over the rest of the loan.

Is Purchasing Mortgage Points Right for You?

The decision to purchase mortgage points is up to the homebuyer and the plans for their home. Many buyers are reluctant to purchase points because they are unsure of how long they will remain in the home. With a little more investment at the beginning of the time in your home, you can save serious money over the course of the loan. To determine if mortgage points are right for you, it is best to crunch some numbers, assess your budget, down payment, and your future plans. If you plan on staying past your breakeven point, mortgage points can save you money in the long run when buying a home. No matter what your financial situation is, the team at Perpetual Title is here to make the home buying process as easy as it can be. Contact our team today to learn more.

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Defining Mortgage Escrow

Escrow is a financial account that is held by a third party on behalf of two parties that are currently engaged in a real estate transaction. The third-party will temporarily hold the property until the purchase agreement has been fulfilled. While escrow accounts are primarily used in real estate transactions, they can also be used in other situations that require an agreement between buyers and sellers or require time to inspect the purchase before payment is made.

Types of Accounts

In real estate, escrow is commonly in two instances:

1. To secure the purchase of a home
   • When you’re buying a home, your purchase agreement will include an earnest money deposit, which shows you’re serious about buying the home. In the event that the contract falls through due to the fault of the buyer, the seller will use the earnest money to relist the home. However, if the purchase is successful then the deposit is applied as a down payment. In order to protect both parties, an escrow account will hold the deposit until the transaction is closed. By holding the money in escrow, this ensures that it will reach the right party once the conditions are met.
2. To hold the homeowner’s funds for insurance and taxes
   • The second type of escrow account is used through the life of your mortgage loan. Most lenders will require you to open an escrow account when signing a mortgage contract. The escrow account will take a portion of your monthly mortgage payment and hold it in escrow. This money is then used to pay property taxes and home insurance. By holding the funds in escrow, the lender ensures that bills are paid on time and avoid any potential penalties against your property.

How Much Does Escrow Cost?

The cost of escrow is dependent on how much you pay for property taxes and homeowners insurance each year. Since your taxes and insurance premium change on an annual basis, your lender performs an annual escrow analysis to determine the amount that should be funded into the account each payment period. In order to keep your escrow funded, you can expect to pay about 1/12th of the total cost of your annual property taxes and insurance every month.

Benefits

The biggest benefit of an escrow account is protection throughout the real estate transaction for both buyers and sellers. For homebuyers, escrow is the key to protecting your deposit during the sale and returned to you if anything falls through. For homeowners, an escrow account will take the pressure off you when it comes to covering your taxes and insurance. This will allow you to make manageable payments and not worry about the various due dates of bills.

Disadvantages

When it comes to an escrow account, most of the disadvantages fall on the homeowner. This includes higher mortgage payments because you’re prepaying for insurance and property taxes. Another possible disadvantage is an incorrect estimate of your taxes and insurance since these can change annually. As stated previously, the lender will analyze these costs each year to determine what you need to pay but the fluctuation could affect your monthly payments and escrow account.

Do You Need an Escrow Account?

Escrow is a part of the homebuyer’s and owner’s journey and serves an important purpose throughout the real estate transaction and life of the home. While it serves as a safety cushion for the transaction, it is also convenient for you to pay for your taxes and insurance in full and on time.

Have additional questions about escrow? Contact Perpetual Title today – we are always happy to help.

The post What is Escrow on a Mortgage and How Does it Work? first appeared on Perpetual Title.