February 2, 2011


What is a rate lock? Why would I need one?

Interest rates change hour to hour, day to day, week to week...you get the picture. If you're somewhere between the application and the closing process, that can be nerve-wracking!

Locking in your rate means your lender will guarantee that rate for a specific period of time, between 15 and 90 days, which means you don't pay more if the rates go up. There is usually a fee involved with this, and it gets more expensive the longer you want the lock for.

What is PMI, and do I need it?

PMI, or private mortgage insurance, is an insurance policy to protect your lender in case you default on your mortgage. Your bank may require that you purchase it, especially if you plan to make a down payment of less than 20% of your home's purchase price, which means you have a loan-to-value ratio (LTV) greater than 80%. You purchase PMI through a third-party insurance company, and pay it through your monthly mortgage payments. How much it costs depends on several factors, such as:
  • Your credit score
  • How much you're borrowing
  • How much your down payment is
  • The term, or length, of your loan
  • Whether your mortgage is fixed rate or variable
Once your LTV is below 80%, you can refinance your mortgage to get rid of the PMI.

What is the loan-to-value ratio? Why do I need to know that?

Loan-to-value (LTV) tells you how much equity you have in your home relative to how much you owe on it and what the house is worth. You can figure it out using simple math.

First, determine your equity: If your home value is $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity. Next, divide your equity by the value of your home. If you have $100,000 in equity, and your home is worth $300,000, your LTV is 66%.

LTV is important to know when you plan to refinance your existing mortgage. If you have high LTV-over 80%-you have lower equity, and may only qualify for mortgages with higher interest rates. You probably will need to purchase PMI as well. If you have lower LTV, you have higher equity, and may qualify for better mortgage rates.

Is the interest rate and the annual percent rate (APR) the same thing?

No, but they are very close. The interest rate is how much it costs to borrow the money from your lender. The APR is the total cost of your mortgage for the life of it, and accounts for additional fees like closing costs, origination charges, lender points, and private mortgage insurance (PMI).

What are points?

Points are percents. One point equals one percent. In the mortgage world, paying your lender points upfront is a way to get a lower interest rate on your mortgage or refinance so you can pay less over the life of your loan.

Is Embrace Home Loans a brokerage or a direct lender?

We're a direct lender for Fannie Mae, Freddie Mac, and an approved Ginnie Mae issuer for FHA insured mortgages. At Embrace Home Loans, you can get the loan you need. As a direct lender, you deal with us, and only us. We'll lend you the money you need, whether it's for a new home, a home renovation, a college education, or to get ahead on your high-interest debt. And we can do it in as little as 21 days. Don't put off your brighter tomorrow. Click the apply now link and fill out our quick, no-obligation, and confidential form. You may call me direct at (301) 354-8251 or email me and I will get back to you as soon as possible.