Not All Mortgages are Alike:

Learn Which is Right for You

April 22, 2014

October 9, 2014

Introduction

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During this seminar we will discuss:

Mortgage loan types (ARM vs. Fixed Rate)

General mortgage information

Points

Payment examples

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How Do You Choose the Right Mortgage?

There is a wide selection of mortgages available in today’s market, you can narrow the field by considering your situation.

Your choice of mortgage will be influenced by questions such as:

How many years do you expect to live in your new home? Is this your first home, home for your family, or your home for

when you plan to retire?

How much of your monthly income do you feel comfortable using for your mortgage payment?

Do you anticipate future income changes?

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Advantages of Fixed Rate Mortgages

If you intend to live in your home for many years, the interest

rate of your loan may be your main consideration.

A fixed-rate mortgage will ensure that your interest rate will

remain the same for as long as you have your loan.A fixed-rate mortgage will offer you:

Security against rising interest rates Easier budgeting of your monthly debt

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Fixed Rate Mortgage Disadvantages

Fixed rates tend to be higher than adjustable mortgage rates, and require greater income to qualify.

If interest rates drop, refinancing is required in order to take advantage of lower interest rates.

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Advantages of Adjustable-Rate Mortgages (ARMS)

If you are confident that your income is going to increase steadily over the years, or if you plan to move in a few years then you may want to consider an Adjustable-Rate Mortgage.

Adjustable-Rate Mortgages offer lower initial interest rates.

Initial monthly payments will be lower, so you may be able to qualify for a larger mortgage amount.

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Adjustable Rate Disadvantages

Possible future rate increases.

An increase in interest rate means your payment will increase.

Your budget may be strained in the case of an interest rate increase.

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Practical Examples of Fixed vs. ARMs

Example #1Mr. Smith

Mr. Smith is a young single professional who is buying his first property. This will be his “starter home” and he plans to move on to another property within 3 years.

For Mr. Smith an adjustable rate mortgage may be better than a fixed because it is his first home and he doesn’t plan to be there more than three years. By the time interest rates start to adjust, he will have moved on to another property.

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Example #2 Mr. and Mrs. Jones

Mr. and Mrs. Jones are a retired couple. All of their children have moved out of the home, and they are planning to downsize from their 5- bedroom home to a 2 bedroom apartment. Since they are both retired, they are living on a fixed income.

For the Joneses, a fixed rate product may be better for them as the interest rate will never increase. It will be easier for them to budget as they will have a consistent mortgage payment.

Practical Examples of Fixed vs. ARMs

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Example # 3 Mr. and Mrs. Chan

Mr. and Mrs. Chan are two professional who currently own a 1 Bedroom apartment. They have recently discovered that Mrs. Chan is pregnant… with triplets! Also with three newborns on the way, Mrs. Chan is planning to be a stay at home mom for a few years before returning to the workforce. They will need a larger home than their current one, and will also have to budget for one income instead of two.

For the Chan’s, and adjustable rate mortgage may be better than a fixed as it could help them to qualify for a larger home with less income.

Practical Examples of Fixed vs. ARMs

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Consult With An Expert

The previously mentioned scenarios give a few examples of what financing may be best in certain situations.

Meeting and speaking with a mortgage expert is the best way to find out which mortgage program will be best for your unique situation.

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Mortgage Types- (ARMs)

3/3: Rate adjusts every 3 years

5/1: Rate is fixed for 5 years then adjusts every year thereafter

7/1: Rate is fixed for 7 years then adjusts every year thereafter

10/1: Rate is fixed for first 10 Years then adjusts every year thereafter

Adjustable Rate Mortgages (ARMs)

Annual and lifetime caps are available on all NYU FCU ARM products.

Initial interest rate is discounted

Terms of 15 and 30 years

Private Mortgage Insurance (PMI)

PMI is an insurance policy provided by outside vendors to reduce the risk to the credit union when a loan exceeds 80% of the purchase price or appraised value whichever is lower.

PMI guidelines tend to be more conservative than NYU FCU’s standard Underwriting Guidelines

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General Mortgage Information

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Debt to Income Ratios (DTIs)

DTIs are used to determine a members ability to repay and take into consideration a members housing and other debt in relation to their gross wages.

Acceptable DTIs are typically 28% for housing and 36% for total debt. The following is an example:.

- Monthly gross income $10,000- Maximum Housing Payment: $2,800 (28%)- Total Debts Including Housing: $3,600 (36%)

Loans with DTIs in excess of 30% housing/40% total debt require increased scrutiny. PMI will typically not insure a loan with a total debt ratio greater than 43%.

General Mortgage Information

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Credit Scoring NYU FCU uses a “representative” FICO credit score to evaluate member mortgage applications. The “representative" credit score is the mid score of the three risk scores. If more than one individual is applying for a loan, the underwriter must determine the single representative applicable score for each borrower and then select the lowest representative score for determining the comprehensive risk for the mortgage loan application.

Example: Mr. & Mrs. Smith Mr. Smith has 3 scores: 705, 720, 735; his representative score is the

middle score of 720. Mrs. Smith has 3 scores: 660, 685, 692; her representative score is 685. Since they are applying for a joint loan, the lower of their two

representative cores is used for qualification purposes, which is 685.

General Mortgage Information

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What are Discount Points?

Discount Points are fees collected by the lender in exchange for a lower interest rate. 

1 point is = 1% of the loan amount

Here are some items to consider when deciding to use discount points.

- How long you plan to remain in the property.- How much will using discount points add to my closing costs?- What will the difference be in my rate if I use discount points?

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Payment Comparison

Purchase Price: $300,000

Down Payment (5%): $15,000

Loan Amount: $285,000

Lets compare the payments using the scenario above.

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Fixed or Adjustable

30 Year Fixed Rate

4.125%Zero pointsLoan amount $285,000$1,381.25 Principle and interest payment .

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Fixed or Adjustable

7 Year Adjustable Rate Mortgage

2.875%Zero pointsLoan amount $285,000$1,182.44 Principle and interest payment

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How to Decide

The payment for the 7 year adjustable is $198.81 less than the fixed rate payment. That’s an annual savings of $2,385.72. Over 7 years that’s a savings of $16,700.04.

If you do not intend to reside in the property for a long period of time, you may want to consider choosing the adjustable rate mortgage.

If you feel that the interest rate environment is unstable and want to know exactly what your payment will be you may want to choose the fixed rate.

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How to Decide

Are you comfortable with the monthly payments?

The payments on the previous slide do not include your real estate taxes, private mortgage insurance (if applicable,) home owners insurance or home owner association fees, if applicable. For Co-op units the examples do not include the maintenance payment.

Summary

Now is a great time to buy a home:

Mortgage rates are still at all time lows.

Property values have declined and are now beginning to stabilize.

There is a large selection of homes on the market.

Questions?

Feel free to contact us

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NYU Federal Credit Union

@NYUBanking

Main OfficeNYU Federal Credit Union14 Washington PlaceNew York, NY 10003-6696Phone: 212-995-3166

Follow us for promotions and new services:

Visit us online at www.nyufcu.com to download a Mortgage Loan Application Checklist or the interactive Mortgage Loan Application.

Make an Appointment

Make an appointment with NYU FCU for a free Pre-Approval. Call 212-995-3166.

An NYU FCU Representative can assist you:

-Calculating what the estimated total monthly payments will be.

-Find the right product for you.

NYU FCU team at 14 Washington Place