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Online Loan Center - FAQs What is the difference between fixed rate and variable rate mortgages?
A fixed rate mortgage is a loan where the principle and interest payment never change during the life of the loan.

A variable rate mortgage is a loan where the interest rate can change periodically. The changes in the interest rate are tied to market rates that exist at the time the interest rate is subject to change. They usually offer lower interest rates than fixed rate mortgages, but can adjust upward if interest rates go up. There is a predefined cap which determines how high the interest rate can adjust.

Fixed rate mortgages are beneficial to those who are on a fixed income, (adverse to interest rate change) and those who prefer fixed payment schedules.

Adjustable rate mortgages are advantageous for those who do not plan to stay in their home for a long time, for those borrowers who do not qualify at higher fixed interest rates, and those who can financially handle fluctuating payments.

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How do adjustable rate mortgages work?
There are many types of adjustable rate mortgages, but all have some common features. One common feature of adjustable rate mortgages is an interest rate change that occurs after a stipulated number of payments have been made. The interest rate can increase or decrease depending on how the new interest rate is calculated. Typically, the interest rate change is based upon a predetermined index value and a margin. If a mortgagor currently has an interest rate that is pending adjustment, the new rate would be calculated by adding the current index rate and a margin. For example, if the mortgagor’s current interest rate was 6.000% with a 2.000% margin, the new interest rate would be determined by adding the current index rate (5.000% as an example) to the margin. In this example the new interest rate would be 7.000%.

The maximum amount the interest rate can change during any adjustment period is usually fixed. This maximum adjustment is called the cap. Adjustable rate mortgages also have a lifetime cap, preventing the interest rate from exceeding a predetermined rate.

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What are escrow accounts and how much do I need in my escrow account?
Escrows are payments made by a mortgagor to a mortgagee for the purpose of paying the mortgagor’s taxes, insurance, and other payments associated with home ownership. The mortgagee is responsible for the timely disbursement of escrow funds to pay the mortgagor’s bills as they come due.

Usually, a mortgage company collects funds for placement into the mortgagor’s escrow account with the mortgagor’s periodic payment for principal and interest. An escrow account has sufficient funds if there is enough to pay all bills when they come due.

It is common practice for mortgage companies to hold an escrow cushion for a mortgagor. The cushion is kept by the mortgage company to assure that if the cost of any escrowed item were to increase in the future, there would be sufficient funds to pay all bills as they come due.

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What happens after I apply?
The time it takes to complete the loan process varies for each application. Here is a list of the stages required to process a mortgage. Remember that completing your application accurately and fully will help speed the process. Some of these stages may only take a few minutes or a few hours to complete.

Processing
After you apply, a loan processor will collect documents and verification to support your request for a loan. The time in processing will vary depending on the type of loan and how quickly the processor receives the documents needed. Much of the processing involves help from other sources such as:

Appraisal - An appraiser will judge the value of the property, generally based on the recent sales in your market.

Credit Verification - We will request a credit report through a credit-reporting agency to verify your outstanding debts and payment history.

Income Verification - Income may be verified with copies of your pay stubs, W-2 forms, tax returns or by an employer.

Asset Verification - To confirm that you have sufficient funds required to complete your mortgage.

Underwriting
Once the application is processed, your processor will submit the complete package for review. The underwriter compares your loan request to the guidelines of the Bank or its investors for the type of loan. Then the underwriter issues a decision on your application based on established guidelines.

Closing
The closing occurs when you sign the papers for your mortgage loan, and when the property is transferred, if your loan is for a home purchase.

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What is a Truth-in-Lending Disclosure and why do I receive it?
The Disclosure is designed to give you information about the costs of your loan so that you may compare these costs with those of other loan programs or lenders.

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What is the ANNUAL PERCENTAGE RATE?
The Annual Percentage Rate (APR) is the cost of your credit expressed as an annual rate. Because you may be paying loan discount points and other pre-paid finance charges at closing, the APR disclosed is often higher than the interest rate on your loan.

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Why is the ANNUAL PERCENTAGE RATE different from the interest rate for which I applied?
The APR is computed from the Amount Financed and is based on what your proposed payments will be on the actual loan amount credited to you at settlement. For example, on a $50,000 loan with $2,000 Prepaid Finance Charges, a 30-year term and a fixed interest rate of 12%, the payments would be $514.31 (principal and interest). Since the APR is based on the Amount Financed ($48,000), while the payment is based on the actual loan amount given ($50,000), the APR (12.553%) is higher than the interest rate.

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What is a credit report?
A credit report is a record of your credit activities. It lists any credit card accounts or loans you may have, the balances, and how regularly you make your payments. It also shows if any action has been taken against you because of unpaid bills.

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Who is allowed to see my credit report?
Credit bureaus (also called credit reporting companies) can provide information only to the following requestors: 1) creditors who are considering granting or have granted you credit; 2) employers considering you for employment, promotion, reassignment, or retention; 3) insurers considering you for an insurance policy or reviewing an existing policy; 4) government agencies reviewing your financial status in connection with issuing you certain licenses or government benefits; and 5) anyone else with a legitimate business reason for needing the information (such as a potential landlord). Credit bureaus also furnish reports if so required by court orders or federal jury subpoenas and they will also issue your report to a third party if you give them written instructions to do so.

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What type of information is on my credit report?
There are usually four types of information:

  1. Identifying Information: Your name (including if you are a Sr., Jr., or a III), nicknames, current and previous addresses, social security number, year of birth, current and previous employers, and, if applicable, your spouse's name.
  2. Credit Information: The accounts you have with banks, retailers, credit card issuers, and other lenders. The accounts are listed by type of loan (mortgage, student loan, revolving credit), the date you opened the account, your credit limit or the loan amount, any co-signers of the loan, and your payment pattern over the past two years.
  3. Public Recording Information: State and county court records on bankruptcy, tax liens, or monetary judgments. (Some credit reporting companies list non-monetary judgments as well.)
  4. Inquiries: The names of those who have obtained copies of your credit report within the last six months (two years for employment purposes).

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Where do the credit reporting companies get their information?
From parties that have previously extended credit to you, such as the department store that issued you a credit card or the bank that issued you a personal loan.

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What should I do if I find an error on my credit report?
Notify the credit reporting company immediately. If the company cannot confirm the information under dispute, it will be removed from your file and a corrected report will be sent to those parties you specify who have received your report within the past six months (or within two years if the party requested your report for employment purposes).

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How do I get a copy of my credit report?
Write or call the three major credit bureaus listed below. Include your name, address, telephone number, previous addresses (for the last five years), your social security number, and your date of birth. If you are married, be sure to include the same information for your spouse.

You may be charged a fee, unless your request comes within 30 days of having been denied credit on the basis of information contained in a report.

www.equifax.com
www.experian.com
www.transunion.com

Keep in mind that the three large bureaus do not necessarily share information with each other. The content of your credit report can vary across bureaus, so it's a good idea to request copies from each one.

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What is private mortgage insurance?
Mortgage insurance is a type of guaranty that helps protect lenders against the costs of foreclosure. This insurance protection is provided by private mortgage insurance companies. It enables lenders to accept lower down payments than they would normally accept. In effect, mortgage insurance provides what the equity of a higher down payment would provide to cover a lender's losses in the unfortunate event of foreclosure. Therefore, without mortgage insurance, you might not be able to buy a home without a 20% down payment.

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Is private mortgage insurance different from other kinds of insurance associated with mortgages?
Private mortgage insurance protects the lender in the event of borrower default and subsequent foreclosure on the home. FHA and VA insurance also protect the lender against borrower default under a government program rather than through the private enterprise system. Credit life insurance (sometimes called mortgage insurance) is life insurance coverage that pays off the mortgage in the event a borrower dies, becomes disabled, or incurs loss of health, according to the terms of the insurance policy. Fire, liability, and theft insurance cover the homeowner and lender from losses, according to the terms and conditions of their respective insurance policies.

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What is Title Insurance?
Title insurance is perhaps one of the most misunderstood of all types of insurance. While property and casualty types of insurance (homeowners, auto, life) insure you for things that may happen in the future, title insurance insures you of things that may have happened in the past. Title insurance guarantees the policy holder (you, the individual, or the lender who holds a mortgage on property) marketable title. In other words, if you have title insurance, you are insured that your property can be conveyed to another without defects or encumbrances.

Additionally, title insurance protects the policyholder from claims against the properties from others. For example, if a neighbor claims he owns part of your property and decides to sue to that effect, your title policy will pay to defend that claim up to the amount of your policy.

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What is Homeowners Insurance and is it required?
By law, every homeowner is required to have homeowners insurance. Without it, you can't take possession of the home. A typical policy reimburses you for losses or damage to the house and its contents and protects you against personal liability. Fairfield County Bank Insurance Services, LLC. a wholly-owned subsidiary of Fairfield County Bank, can assist you with your Homeowners Insurance. For a free, no-obligation quote, contact Fairfield County Bank Insurance Services at (203) 438-0404 or toll-free at 1-888-438-0404. To visit Fairfield County Bank Insurance Services click here. To return to this page use the back button on your web browser.

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