How does mortgage amortization really work?

A fixed rate loan can also be referred to as a fixed payment loan – However, the amount of principal and interest paid changes with each payment.

Interest Paid – The math behind “amortization” or paying a loan off in a fixed period of time starts with the amount of interest that is earned by the lender. This is based upon the rate and principal amount of the loan. Example: $200,000 X 5.00% = $10,000 per year of interest paid

Periodic Payments – Most loans are paid on a monthly basis. If we used the example above and divided the annual interest expense of $10,000 by 12 months, we get $833.33. However, the amount of interest paid each month declines.

Principal Reduction – Each payment also includes a principal portion, which reduces the loan balance. As the balance falls, the amount of interest that’s due with each payment also goes down. Because the monthly payment stays the same, there’s more money left each month to add toward the balance. More principal paid = less interest due, less interest due = more principal paid.

How mortgage amortization works - USA Mortgage
When lenders collect more interest in the early years of a loan, they are only collecting what’s earned as it’s earned. The amortization allows the monthly payments to remain the same throughout the life of the loan. A borrower can always pay extra toward the principal both to shorten the loan term and reduce the total amount of interest paid.

Reach out with your questions. We’re happy to help!

The Fed Increased Rates

The Fed increased rates at their most recent meeting. They also indicated they will likely raise rates three additional times in 2018. Please read on for more:

First, who is the Fed and what do they do?

The Federal Reserve Board (the Fed), controls the Fed Fund Rate and the Discount Rate. These are charges for overnight loans from bank to bank or from the Fed to member banks.

The Fed Increased Rates
What does an increase mean for regular people?

• It could cause banks to increase their “prime rates,” which are often used to calculate interest on consumer products like credit cards and home equity lines of credit (HELOCs).

• Mortgage rates are long-term rates and not directly controlled by Fed rate changes. However, mortgage rates are influenced by Fed policy, and rates can rise in anticipation of future Fed action. There are exceptions, yet home loan rates will typically follow overall interest rate trends over time.

Upcoming change in leadership at the Fed:

In January 2018, the current Fed chair, Janet Yellen, will step aside for a new chair, Jerome Powell. Time will tell whether this transition will impact overall policy.

Here’s what we know:

With the uncertainty, we’re tracking the changes carefully and am happy to keep you informed whenever you like.

Thank you for allowing us to provide you updates on industry news. Please reach out if we can answer any questions for you or help with financing or refinancing your home.

APR (Annual Percentage Rate)

Comparing the cost of Home loans

When you see a loan rate advertised, you’ll also see a corresponding APR (4.5%/4.762% APR). This Annual Percentage Rate is the total cost of your loan (interest and fees) expressed as a single number. The purpose is to give you one number for comparing multiple loans.

An Imperfect Science: The problem with using APR as designed is that the calculation applies to the entire length of the loan, and most people use mortgage loans for only a few years due to refinancing or sale.

Careful Comparisons: Using APR for comparison can become misleading. Here, you can see the low APR option would cost over $1,500 extra if used only three years. In the fifth year, the lower APR begins to pay off with a savings of a little over $500.

Comparing the cost loans

Tip: The bigger the difference between the rate and the APR, the higher the fees. This is great to know when you see a really low rate advertised. An APR that’s anything more than a quarter of a percent or so higher than the actual rate is a sure indication that the closing fees are really adding up.

Preferences: Another way of looking at this example is to ask yourself whether you prefer $3,000 of savings in the bank or a payment that’s $30 less per month. If you are more comfortable with money in the bank, lean toward lower upfront costs. If you are more comfortable with the lowest possible payment and believe you’ll use the loan for five years or more, then the lower APR alternatives start to make sense.

Bottom Line: Lenders are required to disclose APR; it’s our choice to provide this extra information so you can make a truly informed decision about what’s right for you.

Need help? Reach out, and we’ll be happy to assist.

The FHA loan program

The FHA loan program was designed to help those who have trouble getting a home purchase a new home. In fact, the FHA loan program is the oldest loan program in the US. It’s been helping people get homes from close to 90 years. Created during the great depression and insured by the Federal Housing Administration, this loan’s sole purpose was to help lenders bring affordable loan terms to the public with competitive rates and flexible options. So why should you consider an FHA loan? What makes it so effective? Why has it lasted this long? The answers are simple. Affordability and Flexibility.

Unlike other loan programs that offer low to no down payment, the FHA loan program is not restricted by geography or income. In fact, the FHA program is available everywhere and with any income. This makes the program effective for the majority.

Are you worried about your credit score or the amount of down payment you’ve saved? If so, FHA may be the perfect program for you. It offers options for many people with lower credit profiles. Anyone with a credit score above 580 is offered a down payment of 3.5%. If you have a credit score below 580, you still have the option of a 10% down payment. FHA also ties into many down payment assistance programs. This makes it a safe alternative to your typical no money down loan programs. The program allows for more options to come up with a down payment, including a gift from acceptable sources or a secured loan providing you have room in your debt-to-income to accommodate the extra debt.

FHA doesn’t restrict you to only the popular 30-year fixed rate purchase loan. They offer a multitude of programs and options to ensure that you are continually receiving the best terms based on your situation. These include fixed rate, adjustable rate, purchase, rehabilitation, construction, reverse, refinance, and streamline loans. You can do these loans on an array of property types including manufactured homes and multi-unit properties.

The FHA adjustable rate mortgage option is one of the most protective versions of adjustable rate mortgages available. They have better caps on both yearly and lifetime caps making them a go to for those looking for an adjustable rate mortgage.

The FHA 203(k) rehabilitation loan is great for those who are unable to afford the renovations on their home they’ve been dreaming about, but want to add functionality and value to their home. If you are planning to renovate your home and the value will increase, this loan may be right for you. And it offers the same 3.5% down that the FHA purchase loan requires.

FHA construction loans are a competitive alternative to your conventional construction loans. They offer flexibility with regards to draws and contractors. They also offer a 3.5% down payment compared to a conventional 3.5% down payment.

Those who are over the age of 62 with equity in their home may consider an FHA Home Equity Conversion Mortgage or Reverse Mortgage as it’s more commonly called. With a HECM education course, you could use the equity in your home to give you a monthly supplement to your income or a lump sum. Be sure to talk to one of our experts to see if this is a good option for you.

Refinances are easier with FHA. A straight refinance offers options for those with lower credit scores. If you already have an FHA loan, you may have the option to do a streamline refinance. This program allows you to refinance to lower your mortgage insurance or rate without requiring an appraisal.

The benefits of the FHA program are boundless. You can ask the seller to pay up to 6% of your closing costs and you can assume a current FHA loan from a current FHA mortgage holder if you qualify based on terms of their current mortgage. You can purchase a multi-unit property with 3.5% down and use the rental income from the other units to help offset the mortgage payment. The mortgage insurance you pay monthly goes down over time meaning your payment drops over time.

It’s important to understand that FHA does not loan directly to the public. They require approved lenders to lend money and FHA then will insure the mortgage. This means that FHA will cover the loan if it defaults. FHA’s insurance that they would not be responsible to cover the entire cost of the loan if it defaults is what eases lenders into issuing loans. They do this by charging an Upfront Mortgage Insurance and a monthly Mortgage Insurance.

Reach out to one of our FHA professionals if you’re wanting to purchase or refinance a home. We’d be happy to discuss your situation and determine if an FHA loan is best for you!

Buying a home is an exciting process however you must ensure you have the details worked out for your loan to secure the home of your dreams. Getting all the details worked out for financing ahead of time will make the entire process much more enjoyable and stress-free as moving forward.

Pre-Approved for a Mortgage


Applying & Getting Pre-Approved for a Mortgage

Obtaining a home loan also referred to as a mortgage will start with getting in touch with a full spectrum lending company and speaking with a loan officer. Once in contact, you will begin to go over your finical goals such as monthly payment, overall out going budget compared to your income and then your down payment if any is needed. After a brief conversation with you loan officer you will then fill out your loan application, the more detailed you can complete the application can prevent any future issues that may arise.

Once the loan officer has received or taken your full application it will then be reviewed, items reviewed are as follows: Credit, income, assets, you’re out going monthly obligations vs. your gross monthly income these are all factor in the ability to repay the mortgage once granted a full-term loan. After review, the loan officer will suggest the best mortgage program to fit your financial needs while explaining the details of the loan type including repayment structure and possible down payment if needed. This is the most important part to fully understand what programs and terms of the subject loan you entering into.

Once the loan program is chosen, it is now time to start collecting and gathering documentation, turning in all needed documentation is what will be used for review and validation to ensure the ability of repayment. You have now completed the process of Applying for your mortgage to buy your new home!

Next, the file will go to processing for many orderings of needed documentation to send the file to underwriting. Underwriting is the second review of all obtained documentation to ensure for a final time the accuracy and ability of repayment on loan.

Remember to always stay in good communication with your loan officer to ensure a timely and smooth transaction.

There’s more to comparing the costs of renting and owning a home than the dollar cost of payments.

Renting vs. Owning a Home
Even with numbers like these, some still say renting is better:

“Investing in a home is riskier than renting.”

No risk, no reward. Besides, even studies conducted by the Federal Reserve show that owning can provide a net worth that is from several to hundreds of times higher than that of renters.

“Home values have dropped in recent years.”

Which is one reason why home ownership may now be less expensive than renting. As well, recent price trends in many areas have reversed, and values are once again on the rise.

“The tax deductions aren’t worth it.”

Some people benefit from claiming deductions for mortgage interest and real estate taxes. Others find a standard deduction more valuable. Even if you exclude the tax benefit, the real cost of owning can still be less than renting.

Equity for you or equity for your landlord?

With more or less equal payments, owning will always have an advantage in that you’re paying down principal and earning equity in your own home rather than the landlord’s.

Still renting and want to explore the path to ownership? Reach out, and we’ll be happy to help, or visit our First time home buyer page.

Factors used: $200,000 purchase price, 20% down, $160,000 30 yr. fixed loan at 4%/4.25% APR. Principal & Interest payment = $763.86, taxes = $250/Mo. (1.5% of value), insurance = $50/Mo., and maintenance = $168/Mo. (1% of value). Tax deductibility at 28%. Tax savings, principal paid and appreciation averaged over a 5-year period. Always consult with your tax advisor for tax advice specific to your situation. This is not a Good Faith Estimate nor an offer to lend. Rates, prices, taxes, insurance, etc., are subject to change at any time. APR calculations are based on closing costs of 3% of the loan amount. Actual fees can be less. 

What is preventing you from getting that dream home you’ve been watching for the past month? Is your credit score low? Do you not have a down payment? A USDA loan may be the difference you’ve been needing.

USDA loans are guaranteed by the Rural Development Wing of the Department of Agriculture. These loans target low to moderate income families in rural areas to help them achieve their home buying goals. Some of the benefits include:

  • No down payment
  • Lower credit score requirements
  • Verified gift funds for closing costs
  • Seller paid closing costs
  • Income restrictions are based on where you live
  • Bankruptcy doesn’t affect you after three years
  • Convenient eligibility map to see if your home’s location qualifies

USDA benefits are focused on helping rural families purchase their home. USDA and Veteran loans are the only loans to offer no down payment.  This saves you thousands of dollars in upfront costs to buy a home compared to other loan programs such as FHA Loan or Conventional. Lower credit score requirements help those with less than perfect credit still purchase a new home. Closing costs are an expense we rarely think about until the process begins. USDA loans let you get a verified gift from an immediate relative, or your realtor can negotiate the seller to pay up to 6% of your loan amount towards closing costs. This reduces the amount of money needed to close your loan.

To guarantee a no down payment loan, USDA adds an upfront fee of 1% and an annual mortgage insurance of 0.35%. These charges help sustain the program for future home buyers and can be wrapped into the loan, so you don’t have to pay it out of pocket.

What makes USA Mortgage the go-to lender for your USDA loan? We have been the #1 USDA lender in Missouri for five years straight. We’ve done this by accepting lower credit scores, keeping our rates aggressive, and offering lower lender fees than other lenders. We use this to provide a better financial experience for our clients.

A simple phone call to one of our Mortgage Loan Officers could be the difference between no home and a new home. We would be glad to discuss your unique situation and cater a program for your needs.

Be sure to check out our blog for more information to help you navigate the home buying process!

Know what factors influence the actual rate for your loan.

Securing the lowest possible rate has less to do with scouring ads and more to do with the particulars of your transaction. Lenders typically pick the best scenario as the basis for advertisements. Unfortunately, best-case doesn’t apply to every loan.

Mortgage Rate Education
Here are some factors that impact the interest rate for a specific loan:

Loan Level Price Adjustments (LLPAs) – Offered rates are based on LLPAs or risk factors. A high loan to value ratio (LTV) or low credit score, for example, carries higher risk and, therefore, a higher price.
Loan Type – An adjustable rate mortgage (ARM) can provide a lower starting rate vs. a fixed rate loan.
Loan Terms – Shorter terms equal lower rates as equity builds more quickly, reducing the lender’s risk.
Combined Factors – The combination of certain factors work together to impact final pricing. For instance, as credit scores improve, the rate differential for LTV changes are less pronounced.

Securing a good interest rate requires balancing the different factors for your particular scenario. Fortunately, we excel at balancing acts. Let’s work together to discover the options for you.

Here are Mortgage DOs and DON’Ts to follow during your loan process.


Keep All Records in Good Order.

  • Availability– Keep your financial records close at hand in case updates are requested.
  • Income– Be aware that underwriters typically verify your income and tax documents through your employer(s), CPA, and/or IRS tax transcripts. Hold onto new paystubs as received.
  • Assets– Continue saving incoming account statements. Keep all numbered pages of each statement. Ex. 8 of 8.
  • Gifts– If you’re receiving any gift money from relatives, they’ll need to sign a gift letter (we’ll provide) and an account statement evidencing the source, which must be “seasoned” funds.
  • Current Residence– If you’re renting, continue paying your rent on time and save proof of payment. If you’re selling your current residence, be prepared to show your HUD-1 Settlement Statement. If you’ll be renting your home, you may need to show sufficient equity, a lease and receipt of the first month’s rent and security deposit.
Mortgage DOs and DON'Ts - USA Mortgage


Keep your credit shining. Continue making payments on time. Your credit report may be pulled again, and any negative change to your score could cause you to lose your approval and your home.

Understand that things have changed. Underwriters require more documentation than in the past. Even if requests seem silly, intrusive or unnecessary, please remember that if they didn’t need it, they wouldn’t ask.


Apply for new credit. Changes in credit can cause delays, change the terms of your financing or even prevent closing. If you must open a new account (or even borrow against retirement funds), please consult with us first.

Change jobs during the process. Probationary periods, career or even status changes (such as from a salaried to a commissioned position, leave of absence or new bonus structure) can be subject to very strict rules.

Make undocumented deposits. Primarily large but sometimes even small deposits must be sourced unless they are identified. Make copies of checks and deposit slips. Keep your deposits separate and small. Avoid depositing cash.

Wait to liquidate funds from stock or retirement accounts. If you need to sell investments, do it now and document the transaction. Don’t take the risk that the market could move against you leaving you short of funds to close.

Ever be afraid to ask questions. If you’re uncertain about what you need or what you should do, I’m here to help you through the process, even long before you intend to buy.

Preparing in Advance Will Save You Time and Trouble Once You’ve Started Making Offers.


Provide Your Last two paystubs along with your W2s and Federal tax returns for the last two years (include all schedules). State returns are not needed. If you are self-employed, ask me for the additional documentation requirements. If you receive bonus or commission or have changed your job or position, let’s talk.

Planning Ahead for The Mortgage Application


Combine all the funds needed to close into one account at least two months prior to your mortgage application. Be sure to document any other deposits here as each could be scrutinized.

Your Statements

Save all pages of your asset statements, even if some are blank or are just advertisements.


Make copies of checks and deposit slips to prove they are not borrowed money. Deposit checks individually. Don’t deposit cash without clear proof of the source.


If you are going to sell stocks, bonds, investments or borrow against a retirement account, do it now. Cashing out now may cost you a few dollars in additional gains, but it also protects against losses.

Current Housing

  • If you have sold recently or will be selling a current residence, provide a copy of the HUD-1 or Closing Disclosure/Settlement Statement.
  • If you own and are not selling, you’ll need to qualify for both homes or meet the requirements for renting the current
  • If you are renting, show 12 months of canceled checks demonstration timely payments and/or written verification from your management company. Ideally, pay your rent on the same day each month on or prior to its due date.
  • If you live with family, you may need a letter stating that you live rent-free


Check your credit reports at Identify any erroneous info now and consult with us for the correct action to take. If you co-signed a loan or are being reimbursed for a loan that’s in your name, you’ll need at least six months of checks to exclude it. Avoid new credit or inquiries. These can lower your score and increase your rate.


Ideally, you’ll have two years or more with your current employer. Consult with us before changing employers, position or method of compensation. For example, don’t switch from salary to commissions.

Mortgage Rate Lock

Rate Locks: Why do longer ones cost more?

It’s all about risk. Between the times you make application and close your Home loan, interest rates will do what they always do – change. At times, the rate of change is exceptionally volatile, even from one minute to the next. “Locking in” your interest rate protects you from the risk of rising mortgage rates. It’s just like purchasing an insurance policy.

mortgage rates heating up
The risk is not a one-way street, though. Protecting yourself from rising mortgage rates means you transfer that risk to the lender. In turn, lenders must purchase “hedges” to provide protection. These are financial instruments such as U.S. Treasury Bonds whose values move in the opposite direction of rates. A hedge can be expensive, and just like other forms of insurance, longer policy periods cost more. As a result, longer locks have a higher cost, which they are reflected in the cost of your loan.

Risk varies based on the type of loan. Before you decide whether to avoid or pay the premium for a longer Mortgage rate lock, take into account the kind of loans you’re considering. Different loan types may have less volatility in the rate from week-to-week. For example, an adjustable rate loan may be tied to a slow moving index rather than the day-to-day market.

No one knows with absolute certainty what interest rates will do during your application and approval process. One thing is certain: Your loan has to be locked before it can close. For many, the decision is better made based on personal comfort rather than skill in predicting the markets. If you will be most comfortable knowing you are safely locked in, then a longer lock may be less stressful than taking your chances on getting a better rate later.

Either way, we’re here and Our Mortgage loan officers are happy help.

VA Mortgage Loans

VA Loans are mortgage loans geared specifically for active duty members and Veterans of our nation’s armed forces.  In order to be eligible, you must have served a designated amount of time in the Military or in some cases surviving spouses of Veterans are eligible as well.

It is important to understand the difference between eligibility and qualification.  A civilian is not eligible for the VA Mortgage Loan.  A Veteran or Active Duty member is eligible for the program based on their military service.  From there they will still have to meet the credit and income requirements of the VA Loan Program to qualify for the purchase of a home.

The good thing about the VA Loan is that in many cases the income and credit requirements are less strict than other home loan programs.  For example, here are some attractive items offered that help a potential buyer qualify for the VA home loan easier as long as they already hit the service time threshold:

  • Lower required credit scores than on typical conventional loans
  • Higher debt to income ratios are accepted than on typical conventional loans
  • No down payment required

Now, in order to offer a no down payment loan, the VA does collect a “funding fee.”  The funding fee helps sustain the program into the future so the program will continue to be available to other military members and veterans.  The Funding Fee is typically included in your initial loan amount so it is not something the buyer would have to pay out of pocket.

At this point, the only other items that the buyer could be on the hook for would be closing costs and prepaid items.  As long as your home loan offer is structured correctly, the seller can pay those costs for you.  It is important to know that all mortgage loan programs have closing costs and prepaid items, so if we want to limit money out of the buyer’s pocket, then we need to negotiate for the seller to pay for them.

The part of the transaction that is a little bit more strict than conventional loans is that the VA requires any home that you purchase to be in “move-in ready” condition.  The VA Loan program is not a program designed for someone to buy a “fixer-upper.”  As part of the appraisal process to get the value of a property that a buyer is looking to purchase, the appraiser will also check to make sure all items are functioning properly, there is no damage to the home, and all building codes are being met.

While this may be viewed as a hang-up, a knowledgeable realtor should be able to show you homes that generally meet the VA guidelines upfront.  If the appraiser does note any deficiencies on the property, there is still the opportunity to make corrections to those issues.

This is just a very short over here, but the main draw of this program is to help our active duty military personnel and veterans become home owners with as little money out of pocket as possible.  For more details, reach out to us!

Mortgage Rates are Heating Up

Interest Rates are Heating Up!

With the improving economy and expectations the Fed will soon change its monetary policy, mortgage rates are on the rise.

Is there an upside to higher rates? Sure. The same economic changes that bring higher mortgage interest rates bring higher home values, too!

mortgage interest rates heating up - USA Mortgage Columbia, MO


Before, you enjoyed a low mortgage rate but no appreciation in home value.

Now, you pay a slightly higher interest rate expense while earning what could be thousands more through rising values.

Which do you think is better?

Want to take action before it gets any hotter?

Reach out and we’ll be happy to help!

What is an FHA home loan?

If you are a first-time homebuyer with limited amounts of funds to put towards your purchase, or if you have had credit problems in the past, you may find that an FHA loan gives you the freedom and flexibility you need to get into a house and start making it a home for your family.

If you are looking to buy your first home, then you owe it to yourself to check out the loans offered by the Federal Housing Administration (FHA).  These loans can offer significant benefits designed to help you achieve the dream of owning your own home.  Designed with first-time homebuyers in mind, the FHA has designed these loans not only to be competitive in the mortgage marketplace but also easier for you to qualify for if you are having problems getting a loan from a typical mortgage lender on terms you can live with.

FHA fixed / adjustable rate

The FHA offers several types of loans; these include traditionally fixed rate loans as well as adjustable rate loans.  One of the benefits of an FHA adjustable rate mortgage is they guarantee the interest rate on your loan will only change at most by one or two percentage points – no sudden surprises and massive jumps that may knock you off balance financially.

FHA Purchase/Rehabilitation Loan

They also offer a type of loan known as a purchase/rehabilitation loan that allows you to buy a home that needs a lot of work done to it.  The loan combines the purchase price of the home plus the cost of doing the repairs to the home.  No more having to take out a mortgage loan and then worrying about where you will find the money to fix the house up to make it your dream home.  In fact, by doing a lot of the work yourself many home buyers find they can easily afford to get more home than they could buy one that is ready to move into.

Another big benefit of FHA loans is that they typically don’t require as large of a down payment as a conventional mortgage loan would.  They also offer loans to those whose credit may otherwise disqualify them for a convention mortgage.  In addition, the interest on an FHA loan is typically lower for those with less than perfect credit than it would be through a conventional loan program.

FHA Loan-approved lenders

It is important to know that the FHA itself does not lend you the money for the home and it does not set the interest rates on the loans.  The FHA is actually insuring the loan you are getting from a traditional lender.

They are guaranteeing if you default, they will pay for your loan. FHA-approved lenders therefore typically offer loans with better interest rates and less of a down payment because they are guaranteed they will get their money back no matter what may happen in the future.

One easy way for most people to understand how the FHA works is by thinking back to when they were in college.  If you took out a student loan while in college it was guaranteed by the federal government that they would step in and repay it should you default on the loan.  As such, interest rates were typically low and standard across the board and the loans were available to everyone regardless of their credit history.  The same holds true with FHA-backed loans, except there is no guarantee on interest – it is up to you to still make sure you are getting the best deal out there.

Rising Mortgage Rates and Affordability:

How Much Can You Finance with $960/Month?

As rates rise, affordability dwindles. If you want more home for the same monthly payment, acting before mortgage rates rise further may be a direct path to success.

Each example here shows the principal and interest payment for a 30-year, fixed-rate loan.

Mortgage Rates and Affordability

1- Loan of $180,000
Interest rate: 5.00% / 5.27% APR
Payment = $966

2- Loan of $200,000
Interest rate: 4.00% / 4.25% APR
Payment = $955

3- Loan of $160,000
Interest rate: 6.00% / 6.29% APR
Payment = $959

It’s pretty amazing that a rate increase of just 2% can impact affordability by as much as $40,000. Mortgage Rates have been artificially low for some time now due to Fed intervention. As this stimulus is removed, the usual result is for rates to rise. Home Loan Rates have already started rising just in expectation of a change in Fed policy.