Frequently Asked Questions

Q1.  What is the difference between a fixed-rate loan and an adjustable rate loan?

A.  With a fixed-rate mortgage, the interest rate stays the same during the life of the loan.  With an adjustable-rate loan (ARM), the interest changes periodically, typically in relation to an index.  While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change.  There are advantages and disadvantages to each type of mortgage, and the best way to select a loan product is by talking to us.

Q2. How do I know how much house I can afford?

A.  The amount that you can borrow for a home mortgage will depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make.  We also take into consideration what you would like your monthly payment to be.  You may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value.  Give us a call, and we can help you determine exactly how much you can afford.

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Q3.  How is an index and margin used in an ARM?

A.  An index is an economic indicator that lenders use to set the interest rate for an ARM.  Generally, the interest rate that you pay is a combination of the index rate and a pre-specified margin.  Three commonly used indices are the One-Year Treasury Bill, the Cost of Funds of the 11th District Federal Home Loan Bank (COFI), and the London InerBank Offering Rate (LIBOR).

Q4.  How do I know which type of mortgage is best for me?

A.  There is no simple formula to determine the type of mortgage that is best for you.  This choice depends on a number of factors, including your current financial picture and how long you intend to keep your house.  Alderus Funding can help you evaluate your choices and help you make the most appropriate decision.

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Q5. What does my mortgage payment include?

A.  For most homeowners, the monthly mortgage payments include three separate parts:

• Principal:  Repayment on the amount borrowed
• Interest:  Payment to the lender for the amount borrowed
• Taxes & Insurance:  Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes.  This feature is sometimes optional, in which case you will pay the fees directly to the County Tax Assessor and property insurance company.

Q6. How much cash will I need to purchase a home?

A. The amount of cash that is necessary depends on a number of items.
Generally speaking, you will need to supply:

• Earnest Money:  The deposit that is supplied when you make and offer on the house.
• Down Payment:  A percentage of the cost of the home that is due at settlement.
• Closing Costs:  Costs associated with processing paperwork to purchase or refinance a house.

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