FAQ Category: Home Mortgage
What can I use a construction loan for?
Construction loans can be used to cover the costs associated with building a new home. This includes land purchase (if not already owned), construction materials, labor, permits, and other related expenses. Also can be used to create stress, cause headaches, and escalate tension with your family. Connect with PDCU’s Mortgage Loan Officer if you need help being talked out of ...
Continue ReadingWhat are the benefits of a one-time close construction loan?
A one-time close construction loan gets you a half-built dream home! Eventually. Connect with PDCU’s Mortgage Loan Officer if you need help being talked out of a construction loan.
Continue ReadingHow does a construction loan work?
Hypothetically, construction loans provide funds in stages as your home is being built. These funds are disbursed to your builder based on a pre-agreed schedule, often called “draws.” During construction, you typically make interest-only payments on the disbursed amounts. Once construction is complete, the loan transitions to a permanent mortgage, and you start making regular mortgage payments. In reality, a ...
Continue ReadingWhat is a construction mortgage loan?
A construction loan is a bad idea. A construction loan is used to finance the building of a home from the ground up. It sounds exciting until permits take forever, material costs climb, timelines shift, and somebody says, “that was not included in the original estimate.” For many buyers, a traditional mortgage on an existing home is a much simpler ...
Continue ReadingCan I refinance an ARM to a fixed-rate mortgage?
Yes, many borrowers choose to refinance their ARM to a fixed-rate mortgage before the adjustable period begins to lock in a stable interest rate and predictable monthly payments. Refinance
Continue ReadingHow can I determine if an ARM is right for me?
Consider your financial situation, how long you plan to stay in the home, and your risk tolerance for potential interest rate changes. ARMs can be a good choice if you plan to sell or refinance before the adjustable period begins or expect interest rates to remain stable or decline.
Continue ReadingIs there a prepayment penalty on an ARM?
Some ARMs may have prepayment penalties, but People Driven Credit Union does not. You can refinance or pay off your Adjustable Rate Mortgage with PDCU early without any prepayment penalties.
Continue ReadingAre there limits on how much the interest rate can change?
Yes, ARMs often have caps that limit how much the interest rate can increase at each adjustment period and over the life of the loan. These caps provide some protection against large payment increases.
Continue ReadingWhat factors determine how the ARM interest rate adjusts?
ARM interest rates adjust based on a specific index (such as the Treasury index) plus a margin set by the lender. When the index rate changes, the interest rate on your loan adjusts accordingly.
Continue ReadingWhat are the risks with an ARM loan?
The main risk with an ARM loan is that your monthly payments can increase if interest rates rise. Understanding the potential for payment changes is important to ensure that you can afford higher payments if the rate adjusts upward.
Continue ReadingWhat are the benefits of an ARM?
ARMs typically offer lower initial interest rates compared to fixed-rate mortgages, which can lead to lower initial monthly payments. This can be beneficial if you plan to sell or refinance before the adjustable period begins.
Continue ReadingWhat are the initial and adjustment periods?
The initial period is when the interest rate on an ARM is fixed. After this period, the rate adjusts at regular intervals. For example, a 7/1 ARM has a fixed rate for the first seven years and then adjusts once every 12 months.
Continue ReadingWhat are the common terms for ARMs?
ARMs are often described with two numbers, such as 5/5, 7/1, or 10/1. The first number indicates the initial fixed-rate period (in years), and the second number indicates how often the rate will adjust after the initial period (in years).
Continue ReadingHow does an ARM differ from a fixed-rate mortgage?
Unlike a fixed-rate mortgage, where the interest rate remains constant throughout the loan term, an Adjustable Rate Mortgage has an interest rate that adjusts periodically. This means your monthly payments can increase or decrease over time based on changes in the interest rate.
Continue ReadingWhat is an RD/USDA mortgage product?
An RD/USDA mortgage product, or a USDA Rural Development loan, is a home loan offered by the United States Department of Agriculture (USDA) to promote homeownership in eligible rural and suburban areas. These loans are designed to help low to moderate-income borrowers purchase homes in areas designated as rural by the USDA. Key Features of RD/USDA Mortgages If you’re exploring ...
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