How is “Start rate” different from “Qualifying rate”?
Start rate determines the initial payment; the qualifying rate is determined by the programs guidelines and is used to calculate the borrower’s ability to re-pay the loan. Qualification rate is often the payment for the second year of the loan or the rate plus 2%. (An adjustable rate loan with a start rate of 5% will often have a qualification rate of 7%). A common misconception is that by choosing an adjustable rate mortgage with a lower initial payment, the borrower can qualify easier. In reality, the borrower has to qualify for a higher payment.
