Available Loan Types
There are many mortgage products available on the market today. We can help
you find out which one is right for you. Here are the most common options.
Fixed Rate Mortgages (FRM’s):
- Interest rates stay constant for the life of the loan.
- Offered in 10, 15, 20, or 30 year terms.
- Payments are made up of principal and interest (P & I) portions
and escrow portions. The P & I portion would not change for the life of
the loan. Escrow amounts would pay for things like home owners insurance and
property taxes. Escrow amounts may vary from time according to the cost of
these items.
- If your loan requires that you carry Personal Mortgage Insurance
(PMI), these payments would be added to your monthly payment amount until this
mortgage would no longer be necessary. This is normally when you acquire 20%
equity in the home.
- Fixed rate mortgages usually have low down payment requirements.
Adjustable Rate Mortgages (ARM’s):
- Also called variable-rate loans.
- Starts out with a lower interest rate, and changes according to market
fluctuations. How often it changes depends on the terms of the loan. The most
common adjustment term is once every year.
- ARM’s have limits, or caps, on the number of percentage points it
can go up each year. It also has caps on how much it can go up for the life
of the loan. This happens according to the terms of the loan you choose. For
example- your mortgage starts at a rate of 4%. If you have a yearly cap of
2 points, and a life long cap of 6 points, this is what can happen to the percentage
rate of your loan. At the end of one year your mortgage company can increase
your rate by two points, to 6%. At the end of the second year, your mortgage
company can increase your rate by 2 points, to 8%. (A total of 4 percentage
points higher than the original term of the loan.) At the end of the third
year, your mortgage company can increase your rate by 2 points, to 10%. A total
of 6 percentage points higher than the original terms of the loan.) At this
point you have had an increase of 6 percentage points and can no longer have
your interest rate raised for the life of your loan. Of course these changes
are tied to the index that your ARM is based on.
- A convertible ARM allows you to have the lower interest rates for
the beginning of the loan, but the option to convert to a fixed rate loan when
you choose. This usually requires a conversion fee as set up by your loan institution.
Balloon Mortgages:
- These types of mortgages allow you to carry a lower interest rate
than most other types of mortgages.
- Terms of these types of mortgages are usually for 5 to 7 years. At
the end of this time period a payoff payment, or balloon payment, is required
to pay off the remainder of the loan.
- If you plan on staying in the house at the end of your loan period,
you must refinance your loan amount into a conventional mortgage plan to make
your balloon payment. (A FRM or an ARM.)
Interest Only Mortgages:
- An option that can be attached to any type of loan, not an actual
loan type.
- You pay only the interest on your borrowed amount for the beginning
terms of the loan. This is usually between 1 and 5 years in length.
- At the end of your interest- only period you begin making payments
based on the interest rate of the type of mortgage you chose- a FRM or an ARM.
You have conventional principal and interest payments, plus any escrow amounts
due.
- You do not save any money on your principal when choosing this type
of loan. It only delays you paying your principal for a preset length of time.
Your P & I payments will actually be higher after your interest only period,
because your payments will be amortized according to the remaining time left
on the loan. Example- A 5 year interest only option on a 15 year mortgage for
$100,000.00. You will pay only the interest for the first five years, then
you will pay P & I for only 10 years. Therefore, you will be paying off
the $100,000.00 over 10 years instead of 15 years, making your payments higher.
- This option works best for people in certain monetary situations.
The most common ones are if you do not make a set amount of money every month,
such as being paid on commission or bonuses. Another one would be if you are
expecting a lump sum payment of money in the forseeable future. A more risky
reason would be if you are sure you can invest the money saved by doing this
for a secure profit at the end of your interest only period.
Jumbo Loans:
- Most loan institutions follow the Fannie Mae or Freddie Mac federal
guidelines for loans. They have an established maximum loan amount of $359,650.00.
Any loan above this amount would be considered a Jumbo loan.
- Jumbo loans usually carry a higher interest rate.
|
|