Charm Booklet

Consumer handbook on adjustable-rate mortgages

Items Needed Checklist

Checklist for Loan and Purchase Qualification

How to Cancel PMI

Private Mortgage Insurance Cancellation and Termination

What is Mortgage Insurance?

Same Service, Less Charge

First Rate Financial simply offers you the same service as the larger banks, but with less charge.

You will find a combination of rates and fees much lower than your local or national bank/lender. We want you to receive a great deal with great service so you’ll never need to call another mortgage company again. Our goal is to become your lender for life.

The Great Things About First Rate

  • First Rate has a PERFECT reputation with no online review less than 5 stars! Look for yourself!
  • The BEST combination of low rate and closing costs versus our competition.
  • Our approach is a refreshing honest, up front way of communicating with our clients… we tell the customer what they NEED to hear over want they WANT to hear.
  • We close on time! We close on time! We close on time!
  • There are no last minute “surprises” that make the home buying process stressful.
  • E-signature and electronic upload technology to reduce paperwork and increase safety while making the process smooth and efficient.
  • If you need someone, you can get us! We can be reached on weekends and weeknights.

Mortgage Broker in Frisco, Texas

First Rate Financial is a Mortgage Broker located in Frisco, Texas. Our goal is to achieve such a high level of satisfaction for our clients that we will receive repeat and referral business. We do NOT charge fees of any kind to handle your mortgage financing.

When looking for a home loan or beginning the process of refinancing a home, your first step is to undergo a pre-qualification process. Once pre-approved, there will be some other formalities
to go through as well. (processing paper work, checking credit, etc.)

It will be necessary to fill out a 1003 mortgage loan application completely. At the time of application, you may also be provided with a list of items that MUST be returned with your loan application. If these items are not turned in, this will delay getting your loan or losing your interest rate, if the processing period goes beyond quoted lock period. We will make sure to set an expectation of each milestone so the client will know when certain items are due.

First Rate Service to First Rate People

After the initial docs are received, the file (your loan) goes into processing. You will be contacted as additional documents are needed. At that time, we are trying to get your mortgage loan closed!

All and all, the mortgage process can be very smooth, simple, and quick if you choose the correct company to help your needs. With over 15 years of experience in the Texas market, First Rate Financial is the one to choose. We provide first rate service to first rate people!

Acceleration Clause

Allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan.

Adjustable Rate Mortgage (ARM)

A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower’s risk, the ARM may have a payment or rate cap. See also: cap.

Amenities

Features of your home that fit your preferences and can increase the value of your property. Some examples include the number of bedrooms, bathrooms, or vicinity to public transportation.

Amortization

The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan.

Annual Percentage Rate (APR)

The actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans.

Application

(for purposes of the TRID requirements) The submission of a consumer’s financial information for the purposes of obtaining an extension of credit, and consists of the submission of the consumer’s name; the consumer’s income; the consumer’s social security number to obtain a credit report; the property address; an estimate of the value of the property; and the mortgage loan amount sought.

Appraisal

An estimate of a property’s value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property’s ability to produce income.

Assessment

Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or grounds maintenance.

Assumption

An agreement between a buyer and a seller, requiring lender approval, where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs and the loan’s interest rate may be lower than current market rates. Depending on what is in the mortgage or deed of trust, the lender may raise the interest rate, require the buyer to qualify for the mortgage, or not permit the buyer to assume the loan at all.

Biweekly Mortgage

A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a biweekly mortgage is half what a monthly payment would be.

Bridge Loan

A loan to “bridge” the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. Also known as a swing loan.

Business Day

Defined differently for the Loan Estimate (LE) vs. Closing Disclosure (CD): For the LE, a business day is a day on which the creditor’s offices are open to the public for carrying out substantially all of its business functions. For the Closing Disclosure (CD) and revisions or corrections, a business day means all calendar days except Sundays and legal public holidays specified in 5 U.S.C. 6103(a) such as New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.

Buy-Down

Where the buyer pays additional discount points or makes a substantial down payment in return for a below market interest rate; or the seller offers 3-2-1 interest payment plans or pays closing costs such as the origination fee. During times of high interest rates, buy-downs may induce buyers to purchase property they may not otherwise have purchased.

Cap

A limit in how much an adjustable rate mortgage’s monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap.A payment cap is a limit on the monthly payment.

  • An interest cap is a limit on the amount of the interest rate.
  • A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan.
  • An annual cap limits the amount the interest rate can increase over a twelve-month period.

Closing Date

The date that legal obligation starts. At time the Closing Date on the CD may be considered the signing date. Sometimes this is when the transaction is funded. This is also the Consummation Date. Note: Many lenders have expressed that this will be the signing date

Closing Costs

Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount and usually include but are not limited to the following:

Closing Disclosure (CD)

Closing Disclosure form designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form will be given to the consumer three (3) business days before closing

Commitment Fee

A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points and the lender guarantees to lock in that rate.

Co-Mortgagor

One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer.

Condominium

An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as the grounds, the parking facilities and the tennis courts.

Conforming Loan

A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non-conforming loan.

Construction Loan

A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full.

Consumer Handbook on Adjustable Rate Mortgages (CHARM)

A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM).

Conventional Loan

A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).

Curtailments

The borrower’s privilege to make payments on a loan’s principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage’s prepayment clause.

Debt-to-Income Ratio

The ratio between a borrower’s monthly payment obligations divided by his or her net effective income (FHA or VA loans) or gross monthly income (conventional loans).

Deed of Trust

A document, used in many states in place of a mortgage, held by a trustee pending repayment of the loan. The advantage of a deed of trust is that the trustee does not have to go to court to proceed with foreclosure should the borrower default on the loan.

Discount Points

Amounts paid to the lender based on the loan amount to buy the interest rate down. Each point is one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000.

Disbursement Date

The date the amounts are to be disbursed to a consumer and seller in a purchase transaction or the date funds are to be paid to the consumer or a third party in a transaction that is not a purchase transaction.

Down Payment

The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets.

Due-on-Sale

A clause in a mortgage or deed of trust allowing a lender to require immediate payment of the balance of the loan if the property is sold (subject to the terms of the security instrument).

Earnest Money

Deposit in the form of cash or a note, given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property.

Equal Credit Opportunity Act

A federal law prohibiting lenders and other creditors from discrimination based on race, color, sex, religion, national origin, age, marital status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act.

Escape Clause

A provision allowing one party or more to cancel all or part of the contract if certain events fail to happen, such as the ability of the buyer to obtain financing within a specified period.

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)

A quasi-governmental, federally-sponsored organization that acts as a secondary market. investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for conventional mortgage loans, as does FNMA.

Federal Housing Administration (FHA)

An agency within the Department of Housing and Urban Development that sets standards for underwriting and insures residential mortgage loans made by private lenders. One of FHA’s objectives is to ensure affordable mortgages to those with low or moderate income. FHA loans may be high loan-to-value, and they are limited by loan amount. FHA mortgage insurance requires a fee of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.

Federal National Mortgage Association (FNMA or Fannie Mae)

A private corporation that acts as a secondary market. investor to buy and sell mortgage loans. FNMA sets many of the guidelines for conventional mortgage loans, as does FHLMC. The major purpose of this organization is to make mortgage money more affordable and more available.

Fee Simple

The maximum form of ownership, with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner’s designated heirs. Also known as fee absolute.

Fifteen-Year Mortgage

A loan with a term of 15 years. Although the monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less.

Flood Insurance

The Federal Flood Disaster Protection Act of 1973 requires that federally-regulated lenders determine if real estate to be used to secure a loan is located in a Specially Flood Hazard Area (SFHA). If the property is located in a SFHA area, the borrower must obtain and maintain flood insurance on the property. Most insurance agents can assist in obtaining flood insurance.

Gift

This includes amounts from a relative or a grant from the borrower’s employer, a municipality, non-profit religious organization, or non-profit community organization that does not have to be repaid.

Government National Mortgage Association (GNMS or Ginnie Mae)

A government organization that participates in the secondary market, securitizing pools of FHA, VA, and RHS loans.

Graduated Payment Mortgage (GPM)

A fixed-interest loan with lower payments in the early years than the later years. The amount of the payment gradually increases over a period of time and then levels off at a payment sufficient to pay off the loan over the remaining amortization period.

Hazard Insurance

A form of insurance that protects the insured property against physical damage such as fire and tornadoes. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan.

Home Inspection

A thorough review of the physical aspects and condition of a home by a professional home inspector. This inspection should be completed prior to closing so that any repairs or changes can be completed before the home is sold.

Housing Affordability Index

Indicates what proportion of homebuyers can afford to buy an average-priced home in specified areas. The most well known housing affordability index is published by the National Association of Realtors.

Income Approach to Value

A method used by real estate appraisers to predict a property’s anticipated future income. Income property includes shopping centers, hotels, motels, restaurants, apartment buildings, office space and so forth.

Index

A published interest rate compiled from other indicators such as U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan organizations. Mortgage lenders use the index figure to establish rates on adjustable rate mortgages (ARMs).

Interest

The amount of the entire mortgage loan which does not include the principal. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the principal, taxes, and insurance.

Jumbo Loan

A nonconforming loan that is larger than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.

Lien

A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes or a mechanics lien for unpaid debt to a subcontractor.

Loan Estimate

Form designed to provide disclosures that will be helpful to consumers in understanding the key features, costs and risks of the mortgage loan for which they are applying. Initial disclosure to be given to the consumer three (3) business days after application and replaces the GFE and early TIL.

Loan-to-Value Ratio (LTV)

The relationship, expressed as a percentage, between the amount of the proposed loan and a property’s appraised value. For example, a $75,000 loan on a property appraised at $100,000 is a 75% loan-to-value.

Maintenance Costs

The cost of the upkeep of the house. These costs may be minor in cost and nature (replacing washers in the faucets) or major in cost and nature (new heating system or a new roof) and can apply to either the interior or exterior of the house.

Margin

The amount a lender adds to the index of an adjustable rate mortgage to establish an adjusted interest rate. For example, a margin of 1.50 added to a 7 percent index establishes an adjusted interest rate of 8.50 percent.

Mortgage Broker

An intermediary between a borrower and a lender. A broker’s expertise is to help borrowers find financing that they might not otherwise find themselves.

Mortgage Insurance

Money paid to insure the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment. FHA mortgage insurance requires a payment of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.

Negative Amortization

A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan’s principal. The borrower may end up owing more than the original amount of the mortgage.

Non-Conforming Loan

A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are nonconforming. See also: conforming loan.

Points

Charges levied by the lender based on the loan amount. Each point equals one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Discount points are used to buy down the interest rate. Points can also include a loan origination fee, which is usually one point.

Pre-Qualification

Tentative establishment of a borrower’s qualification for a mortgage loan amount of a specific range, based on the borrower’s assets, debts, and income.

Principal

The amount of the entire mortgage loan, not counting interest. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the interest, insurance, and taxes.

Qualification

As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower’s credit history, employment history, assets, debts and income.

RESPA

Abbreviation for the Real Estate Settlement Procedures Act, which allows consumers to review settlement costs at application and once again prior to closing.

Reverse Annuity Mortgage

A type of mortgage loan in which the lender makes periodic payments to the borrower. The borrower’s equity in the home is used as security for the loan.

Right of Rescission

When a borrower’s principal dwelling is going to secure a loan, the borrower has three business days following signing of the loan documents to rescind or cancel the transaction. Any and all money paid by the borrower must be refunded upon rescission. The right to rescind does not apply to loans to purchase real estate or to refinance a loan under the same terms and conditions where no additional funds will be added to the existing loan.

Rollover

At the end of the construction loan period, the borrower’s file is delivered to Bank One Mortgage Loan Servicing Dept. Prior to delivery, CLD contacts the borrower and obtains funds for the tax and insurance escrows, a final title policy and homeowner’s policy. This process is called a rollover.

Secondary Market

A market comprising investors like GNMA, FHLMC and FNMA, which buy large numbers of mortgages from the primary lenders and sell them to other investors.

Servicing

The responsibility of collecting monthly mortgage payments and properly crediting them to the principal, taxes and insurance, as well as keeping the borrower informed of any changes in the status of the loan.

Survey

A physical measurement of property done by a registered professional showing the dimensions and location of any buildings as well as easements, rights of way, roads, etc.

Tenancy

  • Joint tenancy – equal ownership of property by two or more parties, each with the right of survivorship.tenancy by the entireties – ownership of property only between husband and wife in which neither can sell without the consent of the other and the property is owned by the survivor in the event of death of either party.
  • Tenancy in common – equal ownership of property by two or more parties without the right of survivorship.
  • Tenancy in severalty – ownership of property by one legal entity or a sole party.
  • Tenancy at will – a license to use or occupy a property at the will of the owner.

Title Insurance

A policy issued by a title insurance company insuring the purchaser against any errors in the title search. The cost of title insurance may be paid for by the buyer, the seller or both.

TRID Rule

The TILA-RESPA Integrated Disclosure rule consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property into two forms: a Loan Estimate (LE) that must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application, and a Closing Disclosure (CD) that must be provided to the consumer at least three business days prior to consummation.

Truth In Lending Act

The Truth In Lending Act requires lenders to disclose the Annual Percentage Rate and other associated costs to homebuyers within three working days of the loan application.

Underwriter

A professional who approves or denies a loan to a potential homebuyer based on the homebuyer’s credit history, employment history, assets, debts and other factors such as loan guidelines.

Uniform Settlement Statement

A standard document prescribed by the Real Estate Settlement Procedures Act containing information for closing which must be supplied to both buyer and seller.

Veterans Administration (VA)

The federal agency responsible for the VA loan guarantee program as well as other services for eligible veterans. In general, qualified veterans can apply for home loans with no down payment and a funding fee of 1 percent of the loan amount.

Zoning

The ability of local governments to specify the use of private property in order to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.

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Conventional Loans

Conventional loans are mortgage loans offered by non-government sponsored lenders. These loan types include:

  • Fixed Rate Loans
  • Adjustable Rate Loans (ARMs)
  • Jumbo / Construction Loans
  • Reverse Mortgage
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Conforming Loans

Conforming loans are conventional loans that meet bank-funding criteria set by Fannie Mae (FNMA) and Freddie Mac (FHLMC). Both of these stock-holding companies buy mortgage loans from lending institutions and secure them for resale to the investment community. Every year, form October to October, Fannie Mae and Freddie Mac establish limits on what constitutes a conforming loan in a mean home price.Buying back mortgage loans allow these agencies to provide a continuous flow of affordable funding to banks that reinvest their money back into more mortgage loans. Fannie Mae and Freddie Mac only buy loans that are conforming, to repackage into the secondary market – effectively decreasing the demand for non-conforming loans.

Conforming Loan Limits:

Number of Units Maximum original principal balance Alaska, Guam, Hawaii, and U.S. Virgin Islands only
1 $417,000 $625,500
2 $533,850 $800,775
3 $645,300 $967,950
4 $801,950 $1,202,925

NOTE: The conforming loan limit in Alaska, Hawaii, Guam and the Virgin Islands is 50% higher.

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FHA Loan

FHA mortgage loans are issued by federally qualified lenders and insured by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development.FHA loans are an attractive option, especially for first-time homeowners:

  • Generally easier to qualify for than conventional loans.
  • Lower down payment requirements.
  • Cannot exceed statutory loan limits.
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VA Loan

Designed to offer long-term financing to American veterans, VA mortgage loans are issued by federally qualified lenders and are guaranteed by the U.S. Veterans Administration. The VA determines eligibility and issues a certificate to qualifying applicants to submit to their mortgage lender of choice. It is generally easier to qualify for a VA loan than conventional loans.Here’s how it works:

  • 100% financing without private mortgage insurance or 20% second mortgage.
  • A VA funding fee of 0 to 3.3% (this fee may be financed) of the loan amount is paid to the VA.
  • When purchasing a home, veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less.
  • When refinancing a home, veterans may borrow up to 90% of reasonable value in order to refinance where state law allows.

Apply for a VA Loan with a VA Qualified Lender.

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Jumbo Loans

Jumbo Loans exceed the maximum loan amounts established by Fannie Mae and Freddie Mac conventional loan limits. Rates on jumbo loans are typically higher than conforming loans. Jumbo Loans are typically used to buy more expensive homes and high-end custom construction homes.

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Fixed Rate Mortgage

With a fixed rate mortgage, the interest rate does not change for the term of the loan, so the monthly payment is always the same. Typically, the shorter the loan period, the more attractive the interest rate will be.Payments on fixed-rate fully amortizing loans are calculated so that the loan is paid in full at the end of the term. In the early amortization period of the mortgage, a large percentage of the monthly payment pays the interest on the loan. As the mortgage is paid down, more of the monthly payment is applied toward the principal.A 30 year fixed rate mortgage is the most popular type of loan when borrowers are able to lock into a low rate.

Benefits:

  • Lower monthly payments than a 15 year fixed rate mortgage
  • Interest rate does not go up if interest rates go up
  • Payment does not go up, it stays the same for 30 years

Drawbacks:

  • Higher interest rate than a 15 year fixed rate mortgage
  • Interest rate stays the same even if interest rates go down

A 15 year fixed rate mortgage allows you to pay off your loan quicker and lock into an attractive lower interest rate.

Benefits:

  • Lower interest rate
  • Build equity faster
  • If interest rates go up, yours is fixed

Drawbacks:

  • Higher monthly payment stays the same if interest rates go down
  • Interest rate stays the same even if interest rates go down
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Adjustable Rate Mortgage (ARM)

An ARM is a mortgage with an interest rate that may vary over the term of the loan — usually in response to changes in the prime rate or Treasury Bill rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates.Mortgage holders are protected by a ceiling, or maximum interest rate, which can be reset annually. ARMs typically begin with more attractive rates than fixed rate mortgages — compensating the borrower for the risk of future interest rate fluctuations.

Choosing an ARM is a good idea when:

  • Interest rates are going down
  • You intend to keep your home less than 5 years

ARMs have the following distinguishing features:

  • Index
  • Margin
  • Adjustment Frequency
  • Initial Interest Rate
  • Interest Rate Caps
  • Convertibility

Index

An adjustable rate mortgage’s interest rate increases and decreases based on publicly published indexes. ARMS are based on different indexes including:

  • United States Treasury Bills (T-bills)
  • The 11th District Cost of Funds Index (COFI)
  • London Interbank Offering Rate Index (LIBOR)
  • Certificate of Deposit Indexes (CODI)
  • 12-Month Treasury Average (MTA or MAT)
  • Cost of Savings Index (COSI)
  • Bank Prime Loan (Prime Rate)

Margin

Margin is a fixed percentage amount that is pointed added to the index – accounting for the profit the lender makes on the loan. Margins are fixed for the term of the loan.

interest rate = index + margin

Adjustment Frequency

Adjustment frequency reflects how often the interest rate changes – also known as the reset date. Most ARMs adjust yearly, but some ARMs adjust as often as once a month or as infrequently as every five years.

Initial Interest Rate

The initial interest rate is the interest rate paid until the first reset date. The initial interest rate determines your initial monthly payment, which the lender may use to qualify you for a loan. Often the initial interest rate is less than the sum of the current index plus margin so your interest rate and monthly payment will probably go up on the first reset date.

Interest Rate Caps

Interest rate caps put limits on interest rates and monthly payments.

Common caps:

Initial Adjustment Cap

An initial adjustment cap limits how much the interest rate can change at the first adjustment period.

Example:
If your ARM has a 1% initial adjustment cap, your interest rate may only increase or decrease by a maximum of 1% at the first adjustment period.

Periodic Adjustment Cap

A periodic adjustment cap limits how much your interest rate can change from one adjustment period to the next. Usually a six-month adjustable rate mortgage will have a one percent periodic adjustment cap while a one-year adjustable rate mortgage will have a two percent periodic adjustment cap.

Example:
If your loan has a 2% periodic adjustment cap, your interest rate may only increase or decrease by a maximum of 2% per adjustment period.

Lifetime Cap

A lifetime cap sets the maximum and minimum interest rate that you may be charged for the life of the loan. Most ARMs have caps of 5% or 6% above the initial interest rate.

Example:
If your loan has a 6% lifetime cap, your interest rate may only increase or decrease by a maximum of 6% for the life of the loan.

Initial adjustment caps, periodic adjustment caps, and lifetime caps make up an adjustable rate mortgage’s cap structure, and are usually represented as three numbers:

Example:
1/2/6 — Initial adjustment cap is 1 %/ periodic cap is 2% / lifetime cap is 6%.

Negatively Amortizing Loans

Because Negatively Amortizing Loans provide payments caps instead of interest rate caps, they limit the amount the monthly payment can increase. However, there is a risk interest rates could potentially escalate to a point where the monthly payment would not cover the interest being charged. If this scenario were to occur, the extra interest charges would be added to the principle of the loan, resulting in the borrower owing more than was initially borrowed. Borrowers are usually allowed to make payments over the loan amount to pay down the mortgage and guard against this scenario.

There are certain times when having a negatively amortizing mortgage could be beneficial. If a borrower were to lose a job or have an unexpected financial emergency a negative amortization option could ease cash flow situation. However, this should only be used as a short-term solution.

Option ARM loans

Option ARM loans allow the borrower to choose the amount to pay toward the mortgage each month. Make a minimum payment, interest-only payment, 30-year amortized payment or 15-year amortized payment. Pay the minimum amount to free up funds for other uses, or make larger payments for faster equity build up. Option Arms offer much more cash flow flexibility but must be used wisely by the borrower. Always consult a qualified loan officer to learn about all of the risks associated with these types of loans. He or she will also be able to offer valuable advice on properly managing your monthly payments.

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Combined/Hybrid ARMs

A combination of fixed rate and adjustable rate loans:

Fixed-Period ARMs

Borrows often lock into 3 to 10 years of fixed rate payments before the initial interest rate change. At the end of the fixed period, the interest rate adjusts annually. Fixed-period ARMs are typically tied to the one-year Treasury securities index: 3/1, 5/1, 7/1 and 10/1.

ARMs with an initial fixed period beside of lifetime and adjustment caps usually have also first adjustment cap. It limits the interest rate you will pay the first time your rate is adjusted. First adjustment caps vary with type of loan program.

The advantage of these loans is that the interest rate is lower than for a 30-year fixed (the lender is not locked in for as long so their risk is lower and they can charge less) but you still get the advantage of a fixed rate for a period of time.

Balloon Loan

Balloon Loans offer a fixed rate for a specified time period, typically 5 or 7 years, and then adjust to the current market rate. After the adjustment the mortgage stays at the new fixed rate for the remainder of the loan period.

Graduated Payment ARMs

Graduated payment mortgages initially offer lower payments at the start of the loan that gradually increase at preset times. Lower initial payments allow borrowers to qualify for a larger loan amount. Loan amounts negatively amortize during the early years of the loan then pay off the principal at an accelerated rate through the later years.

GPM payment plans will vary by rate of payment increases and number of years over which payments will increase. The greater the rate of increase, or the longer the period of increase — the lower the initial mortgage payments.

Convertible ARMs

If an adjustable rate mortgage is convertible, the borrower may convert to a fixed rate mortgage, when interest rates begin to rise, without refinancing. The new rate is established at the current market rate for fixed-rate mortgages. The terms of convertibility vary among lenders. Typically it involves a nominal fee and minimal paperwork. The downside is that the conversion interest rate is often a little higher than the market rate at the time of conversion.

A fixed rate loan with a rate reduction option allows borrowers, under predetermined conditions, to adjust to the current market rate for a nominal fee. The discount points or interest rates are often slightly higher for convertible loans.

Buydown Mortgage

A temporary buydown initially offers a lower interest rate and lower monthly payments. In order to reduce monthly payments during the first years, borrowers make an initial lump sum payment or agree to a higher interest rate. Over the years, the interest rate gradually increases until it peaks at a fixed rate. Borrowers who chose this loan often expect a significant increase in their income.

Chad Lemons

Chad Lemons

Chad lives in Frisco, Texas with his awesome wife, wonderful son, and crazy dog. When he isn’t working or spending time with the family, he likes to mix in sporting events, concerts, theater, and more sporting events.

“My #1 goal is to make sure every borrower KNOWS that I have their best interest in every loan. I am driven to prove this from start to finish throughout the loan process (and even after). With 15+ years of mortgage experience, I am able to educate each borrower on their specific situation, so they know exactly what to expect at each stage of the financing process. When you combine the service with the pricing we offer, it makes choosing us very simple.”

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Chris Dixon

Chris Dixon

Chris lives in Fort Worth with his beautiful wife and 2 boys!  When he isn’t working his tail off, he loves to play golf and enjoy time with the family.

To Chris, it is imperative that his service far exceeds our competitors and that our rates and costs are unmatched.

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Jenny Bray

Jenny Bray

Hi, my name is Jenny, Senior Loan Officer with First Rate Financial. I currently serve in the Dallas/Fort Worth metroplex. I bring more than 11 years of knowledge and background in the mortgage and insurance industry. I was born and raised in Texas. I attended The University of Texas at Austin where I received my degree in Kinesiology and Business Administration. My favorite thing about this industry is that no loan or customer is ever the same. I believe that working with all different types of borrowers and getting to know them through the process of buying/refinancing their home is a rewarding feeling as the process can be a stressful one, especially first time home buying! I enjoy taking as much stress out of the equation for the borrower and making it as painless and exciting as possible.

As a Loan Originator, my first thought is to create a comfortable, trusting relationship with my borrowers. I feel like setting that foundation is the key to a smooth and easy process. Always being accessible to answer questions or walk my borrowers through every step is also very important.

In my free time, I enjoy yoga, good red wine, movies, concerts and traveling! But most of all, I love my family.

I am looking forward to working with you and creating a fun experience!

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Tawna Cox

Tawna Cox

Tawna joined the First Rate Team in 2016 and has feverishly been building her a successful business since.   Her favorite thing about the industry is that no loan or customer is ever the same. Tawna says “Working with all different types of borrowers and getting them through the process of buying/refinancing their homes is a rewarding feeling as the process can be a stressful one, especially first time home buying!  I enjoy taking as much stress out of the equation for the borrower and making it as painless and exciting as possible.”

As a Loan Originator, “My first thought is creating a comfortable, trusting relationship with my borrowers. I feel like setting that foundation is the key to a smooth and easy process. Always being accessible to answer questions or walk my borrowers through every step is also very important.”

Tawna lives in Prosper, Texas with her husband, eight-year-old daughter and four-year-old son – with a son at Texas A&M..Whoop!  She loves Jesus and believes her faith is what fuels her success. In her free time she enjoys reading, shopping, brunch with her girlfriends, movies, concerts and traveling with her family and friends.

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Jason Turner

Jason Turner

Here at First Rate Financial, we take pride in providing the smoothest, most seamless mortgage experience possible at the lowest cost on the market. Give me the chance to roll out the red carpet just for you. I will take the time to provide you with a number of options, and I have the knowledge and experience to help you make the best decision for your particular situation.

I was born and raised in Texas, and have been originating loans here since 2003. With loads of experience in conventional, FHA, VA, and USDA loans, rest assured that you are in good hands regardless of what program you are looking for. Let me compete and show you what we can do. A quick call might save you thousands of dollars!

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Josh Nelson

Josh Nelson

I joined the First Rate Financial team in 2012 and immediately fell in love with the mortgage industry.  To me, it doesn’t matter if it is the joy of helping people get into their new home or refinancing their current home, either way, it is an exhilarating feeling to know that we really did help to make a difference in someone life.

I can tell my new clients with total confidence, that our combination of rates, closing times and availability are the best deal in the industry.  Working in an industry with long-time friends and being able to help people with the biggest purchases they will ever make really does bring satisfaction to me.

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Sarah Miller

Sarah Miller

I started work in this field because of my passion and compassion for people. Homeownership creates stability and joy in people’s lives. My desire is to help people get into the home that is right for them. To assist them in understanding the entire home buying or refinancing process from start to finish. My goal is to be a partner with my clients walking through one of the biggest decisions of their lives. That is why I chose to work for First Rate Financial. First Rate cares about every client and takes the absolute best care of them and make sure they get the best possible deal. It would be my privilege to assist you in one of the biggest decisions of your life. I promise I will make sure you and your family are taken care of the best I possibly can. Call or email me anytime!

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Current Rates

Type Rate APR
30 Year Fixed 3.25% 3.36%
30 Year Fixed FHA 3.125% 3.58%
20 Year Fixed 3.125% 3.26%
15 Year Fixed 2.875% 3.01%
10 Year Fixed 2.875% 2.99%
7 Year ARM 3.00% 3.17%
5 Year ARM 2.875% 3.10%

4/10/2020@6PM CST

* Based on loan amounts of $200,000+

* Subject to credit and income requirements

* Restrictions apply

All conventional rates and APRs assume 80% financing on a $200,000 loan value with max loan of $484,00.Offers may terminate at any time without notice. Rate/APR calculated on a 365 day year with typical closing costs. Rates/APRs subject to change in closing costs and properties. All rates as of date posted on this website with 30 day lock period. Signed loan application required to lock rate. Rates may be higher for credit scores below 740 middle score. APR will change with loan amount and percentage of home being financed.

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