Ask the Lender Archived Articles

Previously submitted questions and answers for Ask the Lender.

Greg Adams

"How Much Will My Mortgage Payments Be?"

The most popular question we hear from customers when determining whether or not to purchase a home is, "How much will my mortgage payments be?" Greg Adams, SVP Retail Lending, discusses what all is often included in a monthly payment and what you should consider in determining what you can truly afford.

"The mortgage payment of course includes the principal and interest payment that satisfies the accrued interest and a portion of your principal balance based on an amortized schedule, usually over the course of 15-30 years. Additionally, many customers choose to escrow, or add to their payment, the cost of other related items to ensure these items are paid in full and on time. The escrow portion of your payment can include the real estate taxes for the property, the hazard insurance premium, private mortgage insurance and life and/or disability insurance.

In determining how much of a payment you can afford, the standard rule is your housing payment ratio, which includes your principal and interest payment on your first mortgage as well as any subsequent mortgages along with the monthly taxes, insurance and any association dues (condominiums) should not exceed 28% of your gross monthly stable income. Your total debt ratio includes many items depending on your financial situation, such as your monthly housing payment along with your monthly auto, credit card minimum payment, student loan debt and alimony or child support payments. This total debt ratio should not exceed 36% of your gross monthly stable income. The total debt ratio may be affected by losses shown on your tax returns, for example self employment or rental losses. The borrower should prepare a budget of all of his/her monthly expenses and determine for themselves if the home is affordable based on that budget. Borrowers can also access www.mgichome.com which offers a buyers education web page that helps you when buying your first home.

Andrew Rager

"What is escrow and how is it figured?"

Many customers choose to escrow, or add to their payment, the cost of other related items to ensure these items are paid in full and on time. The escrow portion of your payment can include the real estate taxes for the property, the hazard insurance premium, private mortgage insurance and life and/or disability insurance.

At the closing of your loan, you will receive an initial escrow disclosure. This disclosure displays an anticipated year of activity which includes the monthly payment, disbursements to pay your taxes and insurance and a running balance on the account. An initial escrow deposit is collected at your loan closing to open your escrow account as shown on the disclosure. The bank is also allowed by law to maintain a two month escrow reserve in case your taxes or insurance should increase. Annually you will receive an analysis of your escrow account. The analysis will list the past year's payment and disbursement activity as well as the running balance. The analysis will also include the same history but for the following year. The annual analysis will determine if there is a sufficient balance in your account. Your account may have a shortage, thus requiring you to make a special escrow payment or an overage that will be refunded back to you if it exceeds $50. The monthly escrow payment will also be adjusted as a result of the analysis. CNB requires that you escrow for your taxes and insurance if you do not have 20% equity in your property; otherwise it is optional.

Brent Kohn

"Am I better off refinancing?"

With interest rates currently at historic lows, the quick answer to this question is probably yes. But in order to make sure refinancing makes sense for you and your situation, you need to ask yourself these questions:

• How long will I be in this home?
• Do I plan to payoff my current mortgage early?
• How many years do I have left on my current mortgage?
• How much do I owe on my current mortgage?
• What will the cost be to refinance my current mortgage?

Let's say you have plans to move or relocate within 4 years. If the monthly savings you gain from a lower interest rate does not cover the cost of refinancing within 48 months, then you are wasting your time and money refinancing your current mortgage.

If you have been paying extra each month on your existing mortgage and you have less than 10 years left to pay, you really need to do some number crunching to determine if the savings is worth the cost of refinancing. You may determine that even though you are lowering the interest rate significantly on your existing mortgage, the savings will not outweigh the costs.

The cost of refinancing is the same regardless of the amount of the loan; whether it's a $300,000.00 mortgage or a $25,000 mortgage. The resulting savings however is much different. It may cost you $1,100.00 to refinance. On a 15 year term, the savings over the life of a $25,000.00 mortgage may only be $1,500.00. Whereas, the lowered interest rate on a $300,000.00 mortgage may save you thousands of dollars over 15 years.

Some people think that you have to drop your rate by 1% or more in order for refinancing to be worth your time but that is not necessarily the case. You will need to answer the above questions and take a close look at your situation. Our website offers a calculator that can aid you in determining if refinancing is right for you. If you'd like to discuss your options, call your local CNB office and ask to speak with a mortgage lender.

MaryAnn George

"Can I borrow extra?"

As part of the mortgage process, many consumers borrow more than the actual cost of the home purchase in order to consolidate debt, pay for closing costs or just to have a little extra cash.
Below are some things to consider if you want to
borrow more:
Consolidating debt – If you have 2-3 different loans, such as credit cards or personal loans, you can consolidate all these into your mortgage by re-financing -assuming you have that much value in your
home. By combining you will lower your monthly installment payment and have fewer bills each month. Just be sure you are diligent to not fall into the same spending patterns, or you will have wasted the re-finance fees, lost equity in your house and possibly added years to your mortgage for no reason.

Financing closing costs – There are a few things to
consider when you roll the cost of your refi nance into your mortgage. Be sure it does not exceed 80% loan to value. If it does, Private Mortgage Insurance (PMI) will have to be added to your monthly payment, decreasing the amount of your monthly savings. Also, adding closing costs to your loan amount reduces the overall savings you gain from
re-financing and you should consider the amount of time it will take you to recoup those costs. However, assuming you’ll be in your home for awhile, the difference in the payment is usually very small and many people prefer to keep a few thousand in their pockets as opposed to paying it out.

Taking cash out – Consider what you plan to use the money for. If it’s for something long-term, say improvements to your home that will increase its value or college education, it might be worth adding that additional amount to your loan. If you plan to spend the money on a vacation or a car, consider you’ll be paying on that item for 15 or 30 years depending upon the term of your mortgage. That car might
be in the junk yard before it’s actually paid for.

Rod Stover

"How do I obtain a pre-approval?"

A home is one of the most important purchases you will make in your life time. As with any major decision, the more research and planning you do, the better you will feel about the decision you make. The pre-approval process helps you find the right price range, choose the appropriate loan program (term) & may determine the interest rate you receive. In order to avoid feeling overwhelmed, we can guide you through the process and help you find the right fit for your financial situation.

Getting started...

Evaluate your household budget and determine a maximum payment you feel comfortable with for your mortgage loan. If you do not have a budget and need some help, go to Mortgage Guaranty Insurance Corporation(MGIC)'s website, http://www.mgic.com/training/index.html.

• Click on HOMEBUYERS at the top of the page.
• Click on GETTING READY TO BUY.
• Click on HOMEBUYER EDUCATION on the lefthand side.

The link to this site will provide many resources regarding the home-buying process, from pre-approval to closing your loan. MGIC has also prepared a series of newsletters designed to help you. These newsletters cover topics that include: budgeting, the importance of credit, protecting your identity and understanding your credit report.

Obtaining your pre-approval...

Schedule a meeting with one of Citizens National Bank's mortgage lenders. A list of things to bring to your appointment is located here. During the pre-approval process the lender will work with you to find the right product and term that best fits your financial goals. To obtain a pre-approval, a lender evaluates your credit history, and calculates your housing and debt ratios. You should expect to verify your income, length of employment and source of down payment.