Aztec Mortgage of New Mexico - Mortgage Lender and Broker

What are "points"?
Fees used to adjust the yield on a mortgage to current market conditions are called points. There is an inverse relationship between points paid and the interest rate on the mortgage. As the interest rate gets higher, the points get lower. A point equals 1 percent of the mortgage amount. For example, 1 point on a $100,000 mortgage would be $1,000.

What is private mortgage insurance (PMI)?
Private mortgage insurance protects the lender from loss due to payment default by the borrower. It is used with conventional financing only. It may be paid in a lump sum at the time of settlement or in monthly installments as part of the mortgage payment. PMI is typically required when the amount of your loan exceeds 80% of the subject property's value. This type of insurance should not be confused with mortgage life, credit life, or disability insurance which is designed to pay off a mortgage in the event of the borrower's disability or death.

What is title insurance?
Title insurance protects the lender against loss due to problems or defects related to the title on the property being mortgaged. These problems would typically involve ownership claims against the property which were not identified by the title search. It is paid for with a one-time premium at the time of settlement.

What is an FHA or VA mortgage?
Federal Housing Administration (FHA) or Veteran's Administration (VA) mortgages are loans insured by the respective governmental agencies. FHA programs enable lenders to arrange financing for the borrower with a minimal down payment. Similarly, VA programs (available to veterans only) can be made to a borrower who has little or no down payment. When borrowing under these programs, you will pay a Mortgage Insurance Premium (FHA) or a Funding Fee (VA) to insure the mortgage. This is similar to private mortgage insurance on a conventional loan. These insurance premiums may be paid out-of-pocket at the time of closing or financed by increasing the mortgage amount.

What is a conventional mortgage?
A conventional mortgage is a loan not obtained under a government insured program such as FHA or VA. Conventional mortgage loans are typically held by institutional investors such as banks or insurance companies.

What are escrows?
Escrows are funds collected with the borrower's monthly payment and accumulated to pay for items such as property taxes or hazard insurance as they come due. Escrows are also collected at settlement to start the escrow account. Escrowed funds can also be referred to as holdbacks, reserves, or impounds.

What is an ARM?
Adjustable rate mortgages (ARMs) are loans on which the interest rate is periodically adjusted to coincide with prevailing interest rates. The interest rate is tied to an index which may go up or down during the life of the loan. The payment on an ARM will change at intervals defined by the loan contract. The borrower can have lower initial payments with an ARM, making it easier to qualify for a mortgage. Alternatively, a borrower could get a larger mortgage loan with an ARM than with a fixed rate mortgage.

What is a fixed-rate mortgage?
Under the terms of a fixed-rate mortgage, the borrower's payment does not change over the life of the loan.

What is the appraisal?
The appraisal is a statement of property value made by an independent, professional appraiser. It is done to insure that the value of the property is sufficient to secure the loan in the event that the borrower fails to repay the loan in accordance with the provisions of the mortgage contract. The value is set based on the home itself and on recent comparable sales of homes close to the subject property. The appraisal does not necessarily detect or discuss defects in the property or the title to the property.

What is the loan origination fee?
This fee covers the lender's administrative costs in processing the loan. It is often expressed as a percentage of the amount borrowed (see "points").

What is a flood certification/flood insurance?
A flood certification will identify a specific property as being within or not within a flood hazard area as defined by FEMA, a federal government agency. If the property is within a flood zone, you will be required to carry flood insurance, protecting you and the lender from loss due to flood damage.

Frequently Asked Questions About Mortgage Insurance

If mortgage insurance is canceled, are any pre-paid premium amounts refunded (particularly if they were originally paid by adding them to the loan amount)?
If all the mortgage insurance was financed at the time of origination and is canceled prior to it's maturity you may be entitled to a refund if the refundable option was chosen at time of origination. However, if the no refund/limited option was chosen no refund is due.

If a borrower currently has an FHA loan w/MI, after the LTV has reached 80% or less can the MI be canceled?
It is best to refer back your lender for specific information on FHA loans. PMI Mortgage Insurance Co. does not insure FHA loans and therefore can not respond regarding FHA policies.

Can you give an example of how the mortgage insurance escrow's get applied to the payment?
Your lender collects moneys on escrow and remits to PMI when the premium is due. Typically, on an annual premium plan, the lender collects 14 months premium at closing. Twelve months of the premium is paid to PMI as the initial premium. The remaining two months is used to start the escrow account. The lender then collects 1/12 of the renewal every month thereafter. It is hard to give a general rule on a monthly premium plan. The plan was developed in 1994 and lenders have developed unique escrow procedures.

Mortgage insurance covers the lender for the difference between the loan amount and 80% value of the property. So for a borrower who puts 10% down, in effect mortgage insurance covers the 10% difference. What are approximate rates in premium say per $1000 dollars? Does credit history have a bearing on the premium? Can the borrower negotiate the premium?
PMI actually covers the lender for a percentage they designate. The percent of coverage is usually driven by the investor's (often, Fannie Mae or Freddie Mac) requirements. Therefore, the approximate premium per $1000 varies based on the required coverage. The premium is fixed based on plan type (loan to value, loan type, loan term, etc.) and not related to individual borrower characteristics. Therefore, the premium is not negotiable.

Are mortgage lenders supposed to provide borrowers with information on the conditions when they can cancel mortgage insurance?
Because of the wide variation in lender, investor and state requirements, it is necessary to consult your lender on these questions. Keep in mind when considering mortgage insurance issues that the lender is the insured, not the borrower.

Would mortgage insurance be of use to lenders to help approve loans for higher risk (i.e. self employed) individuals?
PMI does insure loans made by lenders to self employed borrowers. However, it is unlikely that our coverage would have any effect on the lender's ability to offer such loans. Generally, mortgage insurance is required due to low down payment and associated risk and not related to borrower credit characteristics or history.

Does mortgage insurance apply for investor properties?
PMI only insures loans on owner occupied residential properties (1 to 4 units).

What is private mortgage insurance?
Mortgage insurance is a type of insurance that helps protect lenders against losses due to foreclosure. This protection is provided by private mortgage insurance companies, such as PMI Mortgage Insurance Co., and allows lenders to accept lower down payments than would normally be allowed.
Mortgage insurance also enables lenders to grant loans that would otherwise be considered too risky to be purchased by third party investors like the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The ability to sell loans to these investors is critical to maintaining mortgage market liquidity, which in turn, allows lenders to continue originating new loans.

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 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 or income. Fire, liability, and theft insurance cover the homeowner from losses according to the terms and conditions of their respective insurance policies.

How small can my down payment be?
Private mortgage insurance makes it possible for a home buyer to obtain a mortgage with a down payment as low as 5% and for low-to-moderate income home buyers as low as 3%. Such mortgages are popular today because potential home buyers are not able to accumulate the 20% down payment that is generally required by lenders if a loan is not insured.

Who pays for mortgage insurance?
The lender does, although they will generally pass that cost on to the borrower. Typically, a portion of the mortgage insurance premium is paid up front at closing, and the rest is paid as part of the monthly mortgage payment.

What are the payment options for mortgage insurance?
Private mortgage insurance can be paid on either an annual, monthly or single premium plan. Premiums are based on the amount and terms of the mortgage and will vary according to loan-to- value ratio, type of loan, and amount of coverage required by the lender.
Under an annual plan, an initial one year premium is collected up front at closing, with monthly payments collected along with the mortgage payment each month thereafter. Monthly plans allow a borrower to pay the lender only 1 or 2 months worth of premium at closing, and then on a monthly basis along with the regular mortgage payment. Under a single premium plan, the entire premium covering several years is paid in a lump sum at closing. Typically, home buyers choose to add the amount of the lender's mortgage insurance premium to the loan amount. By doing this, home buyers can reduce their closing costs and increase their interest deduction. PMI Mortgage Insurance Co. offers a single premium plan called Super Single.

Can mortgage insurance coverage be canceled?
Mortgage insurance is maintained at the option of the current owner of the mortgage. In many cases, the lender will allow cancellation of mortgage insurance when the loan is paid down to 80% of the original property value. However, the degree of equity in the home is not the only factor that a lender may take into consideration. Note that the law in certain states requires that mortgage insurance be canceled under some circumstances.

How does private mortgage insurance differ from FHA insurance?
Although the insurance protection concept is similar, there are differences between private mortgage insurance and FHA. FHA insurance is a government-administered mortgage insurance program that does have certain restrictions. FHA has maximum regional loan limits that are lower than those with private mortgage insurance. FHA may be more expensive, takes longer to receive approval, and has fewer payment plan options. FHA insurance lasts for the life of the loan, unlike private mortgage insurance which is cancelable in most circumstances. FHA is a good choice for some borrowers with credit history problems that might need special assistance.