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Getting an interest rate quote is not as simple as calling up a mortgage broker and asking what the rate is.

What is an ARM Index?

When quoting the interest rate for an ARM, there are 2 parts, the index and the margin. The margin reflects the lender's risk and expenses on the loan, as outlined by the article on the right. The index is the base, on which the margin is added.

There are several types of indexes, including LIBOR, COFI and the 12 Month MTA. This is the primary index that is used for Option ARMs, the ones with the low start rates. ARM rates follow the movement of the index. The margin always stays fixed. Thus, it helps to know how the MTA index works to forecast rate increases or decreases.

The 12-Month Treasury Average Index (12-MTA) is based on the average annual yields on U.S. Treasury Securities adjusted to a constant maturity of one year, as made available by the Federal Reserve. The 12 months average is determined by adding together the annual yields for the most recently available 12 months and dividing by 12.

The 12-MTA Index does not move up or down as rapidly as other market interest rates because the 12-MTA is an average of annual yields on U.S. Treasury Securities over a 12 month period. As a result, rates move up or down more slowly as the new monthly rate is averaged with the prior 11 monthly rates to get the new index.

Help Get Your Buyer a Lower Interest Rate

One of the advantages I bring to the table is that I will look to see how much additional cash is needed to get your buyer to the next lower loan-to-value ratio bracket. Often, this can result in a lower interest rate. The extra cash can come from the buyer's resources or even from seller assist, where some of the money the buyer was going to use for closing costs can be shifted to down payment cash. Sometimes I can knock a half point off the interest rate by coming up with an extra $2,000. On a $200,000 loan, this can save them $70 per month.

• Credit score. The higher your credit score, the lower your rate will be. Typically, those who have a score over 700 will have an interest rate that may be as much as 3 points lower than someone who has a 540 score.
• Loan to value (LTV). The higher the loan as a percentage of the home's value, the higher the risk to the lender in case you default on the payments. Thus, if your LTV is below 80%, you will get a lower rate than if you financed 95% or 100% of the purchase price.
• Rental payment history. Most lenders will look at your most recent 12 or 18 month rental payment history, either by getting a signed verification letter from your landlord or apartment management company, or by requesting cancelled checks. If you show 1 or more 30 day lates, you will be penalized with a higher interest rate.
• Size of the loan. In the mortgage business, size matters. A small loan, less than $75,000 will have a higher interest rate than will a loan up to about $400,000. Loans over that amount will have a higher rate than the normal size loans. Check with me to see what breakpoints my lenders have.
• Combined LTV (CLTV). If you are getting a first and second mortgage to get 100% financing, the combined loan to value will have an impact on your interest rate.
• Rate lock period. If you lock in your rate for just 15 or 21 days, you will get a slight discount on the rate than if you extend the lock period for 30 or 60 days.
• Rural vs. urban location. If you are buying a home out in the sticks (rural area), you may pay up to a quarter point more than if you buy a home in an urban area. This is because of the higher risk of adequately valuing a rural home and being able to resell it in case of default.
• Primary residence or non-owner occupied. If you are going to rent out the home, or have it as a second home, you may pay up to 2 points more in the rate compared to buying a home in which you will live.
• Level of documentation. If you go "full doc", you will pay a lower rate than if you go "stated income" or "limited doc".
• Pre-pay penalty period. A pre-pay penalty is a fee, usually 6 month's interest, that you pay on any amount of principal that you pay over specific lender limits within a 1, 2 or 3 year period. Basically, a pre-pay penalty keeps you with that lender for at least 2 years. These penalties usually apply only to sub-prime borrowers.
• Yield spread to the lender. The fee that a mortgage company makes is often paid out by the lender, and to pay this money, a slight increase is added to your interest rate over their wholesale cost (about a half percent on average). Sometimes this is a bit higher, but should reflect the degree of difficulty involved with getting a loan approved.
• Tax/insurance escrow or no escrow. If you wish to pay your property taxes and homeowner's insurance on your own, you may pay up to a quarter point higher than if you include the taxes and insurance in your monthly payment. Some lenders do not have any difference in the rate.
• Amortization period. A loan that is amortized over 15 years will have a lower rate than will one with a 30 year term. A 40 year term has a higher interest rate than a 30 year term. Often, the rates you see quoted on TV commercials are for 15 years with 2 points up front.
• Fixed vs. adjustable. Fixed rate mortgages usually have a higher rate than the start rate on an adjustable rate mortgage.
• Pre-paid points. A pre-paid point is 1% of the loan amount. Often, you can get your rate lowered by paying 2 or 3 points up front. For this to make financial sense, you should have me do a break-even analysis to see how long you need to stay in your home or keep your mortgage to reach break-even on the higher dollar amount. usually this works out to about 4 years. If you are confused here, call me for a clarification.

So you can see how hard it is for any mortgage consultant to simply quote your borrower an interest rate! My best advice is for you to give me a call so we can sit down and go over all these items to see what your buyer's rate will be.

About My Services

I would like to help you with the task of providing financing to your clients. To do this, I am able to do the following for you:

• Be available when you have an Open House to help greet buyers
• Help explain the various financing options and mortgage programs your buyers have access to
• Pre-qualify any buyer who has not yet talked with a mortgage company
• Determine the largest mortgage for which your buyers qualify
• Resolve any issues on your clients' credit report that can affect their mortgage.
• Obtain a loan commitment from our lenders
• Provide your buyer with a Good Faith Estimate of closing costs
• Determine any seller assist that a prospective buyer may need and qualify for
• Co-ordinate all aspects of settlement including title search, appraisal, and other services

At Your Company Name, we offer mortgages for most buyers, including ones who are self-employed or who have damaged credit. We have lenders who offer 100% financing meaning no down payment for qualified buyers.

We also offer mortgages with start rates as low as 1%, making it easier to get a buyer into a home.

If you have any questions about how I can help you get financing for your clients' homes, please call me at Company Phone #.