Borrowing FAQs

What’s a credit score?

A credit score is a number used by a lender to help determine whether you qualify for a loan, credit card or other lending tool. Many lenders use a system developed by Fair Isaac and Company called the FICO score – a point system based on your credit history. Lenders use three types of FICO scores computed with data provided by each of the three major credit bureaus. They compare the resulting score to that of other consumers with similar profiles. With this information, lenders can predict how likely someone is to repay a loan and make payments on time.

Credit scores usually range from 300 (high risk) to 850 (low risk). Typically, a score above 680 is considered good. You can request your score, along with an explanation of how the score was derived, from Equifax, Experian and TransUnion. Each bureau may have different information about you, so your score may vary. You can also ask your lender for access to your score when you apply for a loan. To find out how to get your credit reports by mail or online, visit www.maine.gov/pfr/consumercredit/credit_report.htm.

What types of things affect your credit score?

As the saying goes, the more you have the more you have to lose – and that definitely holds true for your credit score. You can work hard to build a solid credit history. But despite a flawless track record, even an isolated glitch can damage your credit score. In fact, the higher your score the further it will tumble compared to someone with a marginal score and the same glitch.

How much damage can missing a payment or maxing out a credit card do? It all depends on your beginning score. MSN.com personal finance columnist Liz Pullman went directly to FICO (creators of the credit score) to ask for input on how much various items hurt scores. Here’s what she learned:

Does the Federal Funds Rate affect mortgage rates?

Interest rates are influenced by supply and demand. When the economy is robust and borrowing is strong, interest rates rise. When the economy softens and borrowing levels drop, they fall. The Fed Funds Rate is a short-term interest rate charged when banks lend funds to one another. When the Federal Open Market Committee (FOMC) raises or lowers the Fed Funds Rate, it affects loans that are tied to short-term interest rates, like home equity rates and adjustable-rate mortgages. Long-term interest rates, or rates 10 years or more in maturity such as 30-year mortgage rates, are influenced by short-term rates only in an indirect way.

Fixed-rate mortgages are affected much more by broad market conditions and what investors expect future interest rates to be. (After all, the interest rate is fixed for a long time.) Typically, the 10-year Treasury serves as a good barometer of long-term rates. Historically, any decline in 10-year Treasury yields can expand risk premiums, which can prevent mortgage rates from falling as low as they might otherwise. Your community banker can help guide you through all aspects of a deal, including closing costs.

How do I find balance sheet, income statement and more financial information about the Bank?

Visit the FDIC Institution Directory and enter FDIC Certificate #17743.

What is private mortgage insurance and when is it required?

Private Mortgage Insurance (PMI) should not be confused with Mortgage Life Insurance, which is designed to pay off a mortgage in the event of a borrower’s death. PMI makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with low down payment lending. By purchasing mortgage insurance, lenders take on less risk with down payments as low as 3–5% of the home’s value. It also makes it possible for you to buy more home than you could afford with a 20% down payment. 

The mortgage insurance premium is based on loan-to-value ratio, type of loan, and amount of coverage required by the lender. Lenders usually include the premium in your monthly payment and collect one to two months of the premium as a required advance at closing. It may be possible to cancel Private Mortgage Insurance when your loan balance falls below 75-80% of the property value. Recent federal legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance is amortized down to 78% of the original property value. Please contact your loan officer with any questions about when your mortgage insurance might qualify for cancellation.

What is an adjustable rate mortgage?

An Adjustable Rate Mortgage (or “ARM”) is a loan with an interest rate that changes periodically. You’ll often see ARMs described as “3-1” or “5-1," which indicates how long the interest rate stays fixed and how often it will adjust. For example, a “3-1” ARM fixes the rate for three years, then adjusts it every year.

The adjustable rate is determined by an economic index and may fluctuate up or down. Rising rates may be subject to a “cap,” a maximum amount by which your mortgage rate or payment may increase. Caps may be enforced anytime your load adjusts or over the lifetime of the loan. Many buyers choose an Adjustable Rate Mortgage if they don’t plan to own the property for a long time or if they expect a salary increase before the date their loan adjusts.

How does an escrow account work?

In addition to the principal and interest, you pay a portion of your annual taxes and insurance premium with each monthly mortgage payment. When your taxes and insurance payments are due, they’ll be paid with the funds from your escrow account. Your lender or mortgage servicer will send you an annual escrow analysis detailing any payment changes based on property taxes and/or insurance premium increases or decreases. If the escrow payment changes, so will the monthly mortgage payment, even if you have a Fixed-Rate Loan. The analysis will detail whether the account has a surplus or shortage. If there’s a shortage, you’ll have to repay the difference. If there’s a surplus, you’ll get your money back. What causes a shortage? A few reasons:

• Increases in property taxes and/or insurance premiums
• Tax reassessments
• Insurance carrier changes
• Due date changes
• Fewer escrow deposits than expected

Can I use a credit card to make a loan payment?

Yes, but you’ll owe a handling fee equal to 2.5% of the payment amount for using a credit card to make a loan payment. To avoid this fee, you can mail the payment to the Bank or visit any one of our branch locations.