A credit score is a number used by a lender to help determine whether or not you qualify for a particular loan or other credit. Many lenders use a system developed by Fair Isaac and Company called the FICO score – a point system based on your credit history. There are three FICO scores computed using data provided by each of the three major credit bureaus. The resulting score is compared 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. Your score, along with an explanation of how the score was derived, is available 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 www1.maine.gov/pfr/consumercredit/credit_report.htm.
It is said that the more you have the more that you have to lose. That is certainly the case with your credit score. You can work and work to build a solid credit history with a resulting impressive credit score. You would think, given such a great track record, you would be given a little more leeway for an isolated glitch than someone with a history of credit problems. The truth is, the higher your score the further it will tumble compared to someone with a marginal score given the same glitch. Many wonder how much damage missing a payment or maxing out a credit card will do to their credit score. It all depends on your beginning score. MSN.com personal finance columnist, Liz Pullman, went directly to FICO (the company that created the credit score) and asked for input on how much various items hurt scores. Information on the following score deductions was provided:
| Effect on a 680 score | Effect on a 780 score | |
| 30 day late payment | -60 to -80 | -90 to -110 |
| Maxed-out card | -10 to -30 | -25 to -45 |
| Debt Settlement | -45 to -65 | -105 to -125 |
| Foreclosure | -85 to -105 | -140 to -160 |
| Bankruptcy | -130 to -150 | -220 to -240 |
Generally speaking, 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 there is less borrowing, interest rates go down. 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, such as home equity rates and adjustable rate mortgages. Long-term interest rates, or rates that are 10 years or more in maturity such as for 30-year mortgages, 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 interest rates will be in the future (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. Although 10-year Treasury yields have declined in recent months, risk premiums have widened dramatically. This may be preventing mortgage rates from falling as low as they otherwise might, but today’s mortgage interest rates are still very appealing. There are numerous opportunities to take advantage of today’s mortgage rates, whether fixed or adjustable. It is important to consider all aspects of a deal, including closing costs, and you can expect your community banker to provide those answers for you.
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 provides you with the ability to buy more home than might be possible if a 20% down payment were required. The mortgage insurance premium is based on loan to value ratio, type of loan, and amount of coverage required by the lender. Usually, the premium is included in your monthly payment and one to two months of the premium is collected as a required advance at closing. It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount – below 75% to 80% of the property value. Recent Federal Legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance has been amortized down to 78% of the original property value. If you have any questions about when your mortgage insurance could be cancelled, please contact your Loan Officer.
An adjustable rate mortgage (or “ARM”) is a loan with an interest rate that changes periodically. Many times you will see ARMs described as “3-1” or “5-1." This indicates how long the interest rate stays fixed and how often the rate will adjust. For example, with a “3-1” ARM, the rate will stay fixed for three years, after which it will adjust every year. The rate is determined by an economic index and may fluctuate up or down. Rising rates may be subject to a “cap.” A cap refers to a maximum amount by which your interest rate or your 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 do not plan to own the property for a long period of time, or if they expect an increase in income from the time of purchase to the time their loan will adjust.
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You pay a portion of your annual taxes and insurance premium each month as part of your monthly mortgage payment - in addition to the principal and interest. 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 in it. If there is a shortage, you’ll have to repay the difference. Some reasons there could be a shortage include:
There is a handling fee for using a credit card to make a loan payment. The fee is equal to 2.5% of the payment amount. To avoid this fee, you can mail the payment to the Bank or visit any one of our branch locations.
