Adjustable
Rate Mortgage (ARM)
A mortgage loan in which the interest rate is subject to periodic
adjustment up or down according to the movement of a pre-arranged index
— such as the Cost of Funds Index (COFI) or an institution's cost of
providing savings accounts (CODI or COSI).
Certificates
of Deposit Index (CODI)
The average of the 12 most recent monthly yields on 3-month
certificates of deposit (CDs). The 3-month CD yields we use are
published under "CDs (secondary market)" in the Federal
Reserve's H.15 Statistical Release.
Cost
of Funds Index (COFI)
Monthly weighted average cost of funds for savings institutions that
are members of the Federal
Home Loan Bank System Eleventh District (San Francisco). COFI
consists of the monthly weighted average cost to Bank members of
savings, borrowings and advances.
Cost
of Savings Index (COSI)
World Savings receives money from consumers in the form of deposits and
lends money as home or other loans. The interest rates in effect on
these deposits are the basis for the COSI index. It is not based on
actual interest paid, but rather the weighted annualized average of all
interest rates in effect on World Savings deposit accounts on the last
day of each month.
Index
A way of measuring some aspect of economic activity.
For example, interest rates on adjustable rate loans change in
accordance with changes in certain index values (see Certificates of Deposit
Index, Cost of Funds Index, Cost of Savings Index).
Why is the Annual Percentage Rate (APR)
different from the interest rate?
The annual percentage rate is intended to reflect the total cost of
your mortgage loan. To calculate the APR, lenders consider the interest
rate on your mortgage loan, the term of the loan, and other loan fees
such as closing costs, points, etc. Your monthly payment is calculated
based on the mortgage note rate, not the APR. The APR will be higher
than your interest rate, especially if you are paying any points.
To be used as a valid evaluation tool the APR
must be loan specific. The actual APR will show up on the
Truth-in-Lending statement that you will see once you have submitted
your information and reserved your funds. When comparing loan programs
based on APR make sure you ask each lender their criteria for
determining the APR.
What are points?
Points are a percentage of the loan amount paid at closing that affect
your interest rate. For instance, on a $90,000 loan, 1 point = 1% or
$900. If you pay points, you buy down the rate. Alternatively, in
exchange for a higher rate, the lender pays points to offset your
closing costs. These are considered negative points. Negative points
may be a wise option if you have limited funds to use at closing.
Points are also disclosed as discount points. Whatever the name, they
are itemized on your Good Faith Estimate and are typically paid at
closing.
Are discount points tax deductible?
In many cases they are. Contact your tax preparer or the IRS to obtain
a qualified opinion and the best expert advice.
What is deferred interest?
A type of amortization that occurs when a minimum monthly loan payment
is not large enough to cover all of the loan interest for that period.
The unpaid interest is added to the outstanding principal balance to be
repaid over the life of the loan. At World Savings, we offer the option
of making a larger payment that includes the additional interest.
How can I avoid accruing deferred interest?
At any time, you may make a larger payment than the minimum payment
amount and specify to have the additional funds applied as a principal
only payment. This will automatically pay any outstanding
deferred interest first and then lower the principal balance on the
loan.
What is a Good Faith Estimate?
This is a disclosure, required by law, that
every lender must provide to the borrower within 3 days of application.
This is a "best" estimate of the all the figures associated with
acquiring your property loan.
What is a Truth-in-Lending statement?
Required by federal Law, the Truth-in-Lending statement provides
detailed information about the total charges that you will incur over
the life of the loan. It includes the Annual Percentage Rate (APR), the
amount of interest you'll pay, the amount financed and schedule of
payments, the total of your payments, and late payment charges.
Should I apply for a loan before I start
looking for a property?
Yes. By applying and getting pre-approved for a home loan before you
find a home you wish to purchase, you will know ahead of time how much
you can afford, the estimated monthly payment amount for a given
purchase price and the amount of cash you will need to close your loan.
Is there a fee for a pre-approval?
There is a $45 fee for a pre-approval.
How long is a pre-approval valid?
A pre-approval is valid for 60 days from the date of the application.
When I am pre-approved, am I locked into an
interest rate?
No, a pre-approval does not lock in a rate. It is simply designed
to give you an idea of your ability to be approved and how much you
would qualify for. It will also streamline the closing process
once you have found the home you would like to purchase.
How long will it take to find out if I am
approved?
On average, a conditional loan approval is available within one
business day.
What criteria do lenders use when approving a
loan?
Lenders look at three criteria: Capacity, Credit and Collateral.
Capacity
The lender will weigh your housing expenses and total debt against your
monthly income to determine your ability to repay a loan. They’ll also
need proof that you have the cash available for down payment and
closing costs by verifying funds from sources such as bank accounts,
stocks, bonds, mutual funds, sale of an existing home, or gifts from
family members.
Credit
To determine your credit risk, the lender will look at previous
mortgage payment history, rent payment history, credit card use and
installment debt payment history. If you pay your bills regularly and
on time, you’re demonstrating the integrity that lenders are looking
for in a borrower.
Collateral
When you ask for a home loan, you’re putting the home itself up for
collateral, so the lender will want to know what the home is worth.
Can
I change the loan amount, down payment or program after I've received a
loan decision?
Yes - You can change this information by contacting the Loan
Advisor. Changes can be made at no cost until Loan Documents are
generated, typically 5 days before the closing date.
