Understanding the Fixed Rate Mortgage and the Adjustable Rate Mortgage…
The two basic mortgage loans available for the homeowner today is the fixed rate mortgage and the adjustable rate mortgage. The basics of mortgage loans are pretty easy to understand. While your Lender will advise you on which mortgage might work best, it's important for you to make the final decision. Listed are some pros and cons of fixed and adjustable rate mortgages below to help you make your choice:

The Fixed Rate Mortgage
When you choose a fixed-rate mortgage, you're assured your interest rate will remain the same for the life of the loan.

• The life, or term, of a mortgage is 30 years by industry standards, but 15- and 20-year-term loans are also available.
  
  
• Should you opt for a shorter-term loan, you can reduce your interest rate even further. For example, a 15-year rate is typically one-quarter to one-half percent lower than one for 30 years. The smaller rate and shorter term mean you'll pay less over the life of the loan than if you borrowed the same amount over a longer term. Remember, the shorter the loan term, the higher the monthly payments.
  
  
• Fixed-rate mortgages protect you from the risk of rising interest rates. But you could end up with a higher rate should interest rates fall.

Adjustable Rate Mortgage
The second major mortgage category is the adjustable rate, or ARM. Initially, an ARM rate is lower than one that is fixed, about one-quarter to two points less, depending upon the economy.

• With its lower preliminary rate, ARMs can help you qualify for a larger loan or start off with smaller payments than with a higher fixed rate.
  
  
• Generally, ARMs have caps on how high it can adjust during each adjustment period and over the life of the loan. This protects you from drastic market changes, but doesn't offer the stability of a fixed rate loan.
  
  
• ARMs are a good choice for someone who knows their income will rise and at least keep pace with the potential rate increases.
  
  
• If you plan to move in a few years and aren't concerned about the possibility of a higher rate, an ARM could be a good choice.
  
  
• When the first adjustment occurs (usually between six and 12 months) and how often it adjusts depends upon the terms of the loan.
  
  
• To come up with an ARM rate, the lender adds a "margin," usually two to four percentage points, to the index. Its interest rate adjusts up or down, depending upon current economic trends and is based on a money market index. The one-year U.S. Treasury bill is commonly used because its yield is similar to the 30-year U.S. Treasury bill used to set rates on 30-year fixed mortgages.

Likely the largest debt you'll ever take on, a mortgage is a loan to finance the purchase of your home.

Your home is collateral for the loan, which is also a legal contract you sign to promise that you'll pay the debt, with interest and other costs, typically over 15 to 30 years.

To repay the debt, you make monthly installments or payments that typically include the principal, interest, taxes and insurance, together known as PITI.

Principal -- The principal is the sum of money you borrowed to buy your home. Before the principal is financed you can give the lender a sum of cash called a down payment to reduce the amount of money that will be financed.

Interest -- Usually expressed as a percentage called the interest rate, interest is what the lender charges you to use the money you borrowed.

Points -- As well as the given rate, the lender could also charge you points, and additional loan costs. Each point is one percent of the financed amount and is financed along with the principal.

Amortization -- Principal and interest comprise the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period of time. With amortization, your monthly payments are largely interest during the early years and principal later.

Escrow--In addition to your principal and interest, your mortgage payment could include money that's deposited in an escrow or trust account to pay certain taxes and insurance. Generally, if your down payment is less than 20 percent, your lender considers your loan riskier than those with larger down payments. To offset that risk, the lender sets up the escrow account to collect those additional expenses, which are rolled into your monthly mortgage payment.

Taxes -- The taxes are property taxes your community levies based on a percentage of the value of your home. The tax is generally used to help finance the cost of running your community, to build schools, roads, infrastructure and other needs. You must pay property taxes even if you don't need an escrow account and even after your mortgage is paid off.

Insurance -- Lenders won't let you close the deal on your home purchase if you don't have home insurance, which covers your home and your personal property against losses from fire, theft, bad weather and other causes. Even if you pay cash for your home, you should buy home insurance unless you can afford to repair or rebuild your home if it's damaged or destroyed.

Flood Insurance -- If your home is in a federally designated high flood risk zone within a flood plain and you are signing for a federally insured loan, federal law mandates that you must buy flood insurance. If you are not in a high flood risk zone, you still may buy the coverage.

Private Mortgage Insurance (PMI) -- If you put less than 20 percent down on your home purchase, most lenders will also charge you private mortgage insurance (PMI) premiums. The coverage doesn't protect you, it protects the lender from you defaulting on the mortgage. Without the coverage, many buyers could not otherwise afford to buy a home.

What's Your Goal?
Choosing the right mortgage for your lifestyle could have substantial impact on your retirement, your net worth, and your family's future lifestyle. It is critical that you choose a loan program that fits your needs as well as your future goals. Here are a few choices you may want to consider.

If you plan to move or refinance within the next 5 to 7 years...

Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
These increasingly popular ARMS -- also called 3/1, 5/1 or 7/1 -- can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25 years. It's a good choice for people who expect to move (or refinance) before or shortly after the adjustment occurs.

If you plan to stay in your home for at least 7 years...

Thirty-Year Fixed Rate Mortgage
The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then adjustable-rate loans are usually cheaper. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.

Fifteen-Year Fixed Rate Mortgage
This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate -- and you'll own your home twice as fast. The disadvantage is that, with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years. This approach is often a safer than committing to a higher monthly payment, since the difference in interest rates isn't that great.

If your income varies throughout the year...

Negative Amortization (Neg. Am) Loan
This is a deferred-interest loan which is very powerful -- and the most misunderstood mortgage program because of its many options. Basically, the lender allows the borrower to make monthly payments that are less than the accruing interest. Therefore, if the borrower chooses to make the minimum monthly payment, the loan balance will increase by the amount of interest not paid on the loan. The power of this loan lies in the borrower's ability to choose between making the full loan payment, or the minimum payment, or any amount in between. If a borrower's income varies throughout the year (due to commissions, bonuses, etc.), the borrower can make a lower payment during the "lean times", and then make higher payments when funds are readily available.

Congratulations on your decision to buy a new home! There are many important things to consider throughout the process, especially if you're a first-time homebuyer. Here's some information that will keep you on track.

In General....

A home purchase may be your largest financial transaction to date, so it's important to make the right decisions and to keep an eye on the details. With the assistance of your Real Estate Agent and Loan Officer, it should be an efficient, pleasant, and ultimately rewarding experience.

Count On Your Real Estate Agent To:

1. Preview available homes to weed out those that are overpriced, or undesirable in some other way.
2. Present the homes that suit your needs as you've defined them.
3. Help you determine the difference between a "good buy" and a property which, because of its nature (neighborhood, market appeal, etc.), might have to be discounted if you decide to sell in the future.
4. Negotiate the best deal for you. With a Pre-Qualification letter from United Residential Mortgage LLC in hand, your Real Estate Agent will be able to demonstrate that you are a qualified and capable borrower. This will strongly influence the Seller, and may make the difference between the Seller accepting your offer or someone else's -- even if your offer is lower!

Count On Your Mortgage Broker and Loan Officer To:

1. Assist you in selecting the best loan to meet your personal situation and goals. (This single decision can save you thousands of dollars throughout the years!)
2. Keep you informed of your loan status throughout the entire process.
3. Keep your Real Estate Agent informed of our loan progress (Note: your personal information is always kept confidential between you and United Residential Mortgage LLC; only deal points and progress are shared).
4. Get the appropriate loan for you at the best rates and fees. This will save you significant money "up front" and throughout the years to come.

Count On Yourself To:

1. Keep your Real Estate Agent informed of any questions or concerns as they develop.
2. Keep the process moving by providing documentation and decisions as soon as reasonably possible. By doing so, many of the details are taken care of early in the process so you can comfortably concentrate on any last-minute details or events that require your attention.
3. Enjoy purchasing your home, but do remain objective throughout -- to make the business decisions that are best for you.
4. Make sure you are pre-approved as early as possible. This will put the power of financing behind you so you can concentrate on selecting your home.
   

Which mortgage is the right choice for you? Here is 10 easy steps to make the right mortgage choice.

Mortgage. It's a word and a concept that can strike terror in even the most stouthearted of potential homeowners. With its often baffling intricacies that determine how much more you do or don't pay every month, it's a justifiable anxiety.

Take heart, for we have the 10 essentials you need to soothe your mortgage-addled soul. In fact, the basics of mortgage loans are pretty easy to understand.

The Rate Remains the Same
When you choose a fixed-rate mortgage, you're assured your interest rate will remain the same for the life of the loan.

1.		Loan Length. The life, or term, of a mortgage is 30 years by industry standards, but 15- and 20-year-term loans are also available.
2.		Rate Reduction. Should you opt for a shorter-term loan, you can reduce your interest rate even further. For example, a 15-year rate is typically one-quarter to one-half percent lower than one for 30 years. The smaller rate and shorter term mean you'll pay less over the life of the loan than if you borrowed the same amount over a longer term.
3.		Monthly Money. Of course, the shorter the loan-term, the higher the monthly payments.
4.		Higher Rates? Fixed-rate mortgages protect you from the risk of rising interest rates. But you could end up with a higher rate should interest rates fall.

ARMs
The second major mortgage category is the adjustable rate, or ARM. Initially, an ARM rate is lower than one that is fixed, about one-quarter to two points less, depending upon the economy.

5.		Larger Loans. With its lower preliminary rate, ARMs can help you qualify for a larger loan or start off with smaller payments than with a higher fixed rate.
6.		Rate Cap. Generally, ARMs have caps on how high it can adjust during each adjustment period and over the life of the loan. This protects you from drastic market changes, bit doesn't offer the stability of a fixed rate loan.
7.		Income Increases. ARMs are a good choice for someone who knows their income will rise and at least keep pace with the loan rate's periodic adjustment cap.
8.		Moving On? If you plan to move in a few years and aren't concerned about the possibility of a higher rate, an ARM could be a good choice.
9.		Rate Changes. When the first adjustment occurs (usually between six and 12 months) and how often it adjusts depends upon the terms of the loan. After the first adjustment, subsequent modifications can occur every six months, once a year or longer. Should rates fall, so does your monthly payment.
10.		Rate Configuration. To come up with an ARM rate, the lender adds a "margin," usually two to four percentage points, to the index. Its interest rate adjusts up or down, depending upon current economic trends and is based on a money market index. The one-year U.S. Treasury bill is commonly used because its yield is similar to the 30-year U.S. Treasury bill used to set rates on 30-year fixed mortgages.