What is Title Insurance, and how does it work?
Will I be required to purchase Title Insurance for my loan?
Title Insurance is an insurance policy that is typically paid by a homeowner which ensures that the homeowner and/or the lender have a clear title, free of any claims. As one attorney aptly states, “title insurance protects against the unknown”. If someone were to make a claim against your property, and you were covered by title insurance, the insurance company would pay all expenses needed to clear any clouds on the title to the property. There are two types of title insurance: an owner’s policy and a lender’s policy. An owner’s policy will protect the homeowner for the full value of the property for as long as that person owns the property. A lender’s policy only protects the lender and covers up to the amount of the outstanding loan. Most lenders require the borrower to provide a lender’s policy.
Adams Community Bank requires a lender’s title insurance policy on all its fixed rate mortgage loans. Mortgage Notes are a negotiable instrument and can be sold to a secondary market. We aren’t necessarily saying that all fixed rate mortgage notes will be sold, but the bank reserves the option to do so if needed. Title Insurance is generally not required on Adjustable Rate Mortgage loans (ARMs) as these loans are not marked for sale.
What is an Adjustable Rate Mortgage?
An Adjustable Rate Mortgage (ARM) is a mortgage product in which the rate may change or adjust from time to time. These adjustments are based on the pricing of an index (typically a US Treasury) and a set margin (amount added to the index to come up with the rate). Adams Community Bank offers three Adjustable Rate products: a 1-yr (1-1), 3-yr (3-3), and a 5-yr (5-1) ARM. The 5-yr or 5-1 ARM is fixed for 5 years and adjusts annually thereafter to the 1-yr US Treasury plus the bank’s margin which is currently 2.75%. The 3-3 ARM is fixed for 3 years and adjusts every 3 years to the 3-yr US Treasury plus the bank’s margin of 2.75%. Some protections are built in to the product to protect both the bank and the borrower. These protections are adjustment caps. On a 5-yr ARM, the rate cannot go up or down more than 2% in any adjustment, nor can it vary more than 6% in either direction over the life of the loan. Often times, Adjustable Rate Mortgage loans have a lower initial interest rate than fixed rate mortgage loans.
How do I know if an Adjustable Rate Mortgage is right for me?
This depends mostly on two factors – your appetite for interest rate risk and the amount of time you plan on having the mortgage loan for. For example, if you see yourself refinancing or selling in the next 5-7 years, a 5-yr ARM may be the right product for you, especially if the difference in rate and monthly payment is significant.
What is a Point, and is it worth it to me to pay a point to lower my interest rate?
A point is 1% of the loan amount, and it is paid upfront at closing as pre-paid interest. In return, you are given a better interest rate. To determine whether it is worth your benefit to pay a point, you first need to have an idea of how long you plan on having the current mortgage loan. You then compare the cost of the point to the savings on the monthly payment realized by paying the point. You simply divide the cost by the monthly savings to determine the number of months or payments you will make until you realize a savings. (Example: On a $100,000 loan, 1 point equals $1,000. If the difference in payment is $25, you would divide 1,000 by 25, which is 40. In this example you realize the benefit of paying the point after 40 months).
Will Adams Community Bank sell my loan and what happens if it is sold?
Our goal is to build long-term banking relationships with our customers. On occasion the Bank may decide to sell a loan. If that occurs, we will ensure that this is a seamless event for our customer. You would still continue to make your payments to Adams Community Bank and deal with the loan professionals at Adams Community Bank for the duration of your loan.
What is a Jumbo-Rate Mortgage?
Most banks refer to a Jumbo Rate mortgage as defined by Fannie Mae/Freddie Mac Secondary Market conforming loan limits. When a loan amount exceeds the conforming loan limit, it is generally classified as Jumbo. Currently the secondary market conforming loan limit, in most areas of the country, is $417,000. Banks can sell loans up to this limit into the secondary market. When a loan exceeds $417,000, a bank either has to hold the loan for duration in its portfolio or find an alternative market in which to sell the loan. For that reason, banks often charge a higher rate for Jumbo mortgages in order to compensate for added risk.
What can I expect to pay for closing costs at Adams Community Bank?
Closing costs can vary, depending on several factors: loan amount, whether it is a fixed or an adjustable rate loan, and whether it is a purchase or a refinance. A good rule of thumb is to budget approximately $3,000, but you should ask one of our loan professionals to provide you with a Loan Cost Worksheet to compare our costs to that of other lenders. We are confident that our closing costs will be less than most lenders.