Now, your monthly payment accounts for a 3% interest rate (1% T-bill + 2% markup).ĭue to the consistent monthly payments, usually fixed loans are the better choice for those looking to stay in their homes for the long-term. Then, in year seven, the T-bill rate goes back down to 1%. Now, your interest rate jumps from 2% to 6% (4% T-bill + 2% markup)! This jump will boost your monthly payment significantly. After year five, let's suppose the T-bill rate is 4%. Your monthly payment will be constant for the first five years, calculated at a 2% interest rate to pay off the loan in 30 years. The interest rate is 2% for the first five years, and then the one-year T-bill rate plus 2% each year after. As an example, let's say you have a 5/1 ARM over a 30-year term. They'll take that index (say, the one-year Treasury bills) and add a percentage to it. After that, your interest rate will adjust based on an index. With this loan, you will have a fixed rate for a certain length of time (say, five years). The second loan category is an ARM or adjustable-rate mortgage. Calculate monthly payments and what you may be able to borrow with Wells. The shorter the term, the lower the interest rate! Use our mortgage calculators and other tools to estimate the cost of your home. These loans typically have 30, 20, 15, or 10-year durations. The only way you can adjust it is to refinance. Therefore, if your term is 30 years with a monthly cost of $1,500 per month at 3.5% APR, that payment, term length, and interest rate will never change. They have a fixed interest rate and monthly payment for the duration of the loan. Broadly, there are two types of loans, and each one has a drastic impact on your refinance rates.įixed loans are the first loan category. The minimum credit score is 580, and, while there is no specific debt-to-income maximum, anything above 41% will encounter additional scrutiny.Ĭhoose the type of loan that you want. This option has significant benefits, allowing refinancing for up to 100% of your home's value (including cash out!), as well as no mortgage insurance costs. The downside is that you must pay for private mortgage insurance - even with 20% equity - which tends to make this option more expensive.įinally, the last (and best option, if you qualify) is a VA refinance. You can refinance up to 80% of your home's value. You'll need a minimum credit score of 580 and a debt-to-income ratio of 43% maximum. With this replacement mortgage, you'll have a loan backed by the Federal Housing Administration. The bank has a set of criteria that they'll use to determine if you qualify or not, which typically means a credit score of at least 620 (although 680+ is preferable) and a debt-to-income ratio of no more than 45% when factoring in the refinanced loan. When applying for a conventional refinance mortgage, you can refinance up to 80% of your home's value. This loan type is the most common and the most straightforward. There are three possible loan types from which you can choose. We can visualize the impact with a nice chart (requires some extra work) like this:ĭo check the download workbook for details on how the chart is setup.Select the type of loan for which you would like to see the refinance rates. Go ahead and play with the table by typing some values in the “Extra payment” column. Step 3: Your mortgage will end when the “Eff.
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