Check out the mortgage terms and descriptions that are used in the mortgage world Dictionary Terms >>
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30 years ago, the home loan of choice was the 30 year fixed rate mortgage. Over the years, as mortgage bankers and lending institutions adapted to different economic situations and customer desires, the array of mortgage products available has grown in number and complexity. Adjustable rate mortgages that are fixed for some extended period of time and option arms which allow the consumer to pay a minimum payment that is below the interest being charged, or an interest only payment, or a fully amortized 30 year payment.
All mortgages serve the same function – to fund the purchase or refinance of a property. But the terms and conditions of one loan may not be the best terms and conditions for every borrower. Now we have all kinds to meet the varied needs of the consumer. Here's a brief description of these loan programs.
For a loan to be called a fixed rate mortgage it must carry a fixed rate of interest for the entire length of the loan.
30 Year fixed rate - A loan bearing a fixed rate of interest for thirty years. The fixed amount payments, a combination of interest and principle, will pay off the mortgage in 30 years.
40, 20, 15, 10 year fixed rate - As above a fixed rate, fully amortized loan set for a different time period. The shorter the term of the loan the faster the principle pay down and the higher the payment.
Fixed Rate/Interest Only - These loans carry a fixed rate but allow the borrower to pay only the interest that has accrued during the month. The borrower can pay additional principle if desired. Typically the interest only payment is allowed for the initial 10 years. After that time if the borrower retained the same loan and began the fully amortized payments – the payment would rise dramatically.
Balloon Loan – A loan that is subject to a balloon payment.
All loans that have interest rates that are not fixed for the entire period of the loan are adjustable rate mortgages.
Fixed Period ARM Loans
These are loans that are typically 30-year loans that offer a fixed rate of interest for a specific period of time. The different fixed rate periods typically offered are1, 3, 5, 7 and 10 years. At the end of the fixed rate period the interest rate will adjust and subsequently adjust again each 6 or 12 months. These loans are offered as fully amortized or as interest only loans.
Option ARM Loans
These loans are known by many different names – The Smart Loan, The Power ARM, Cash Flow ARM and the NegAm loan. Lenders do not advertise these as Neg Am loans but throughout the mortgage industry that is what they are called.
This type of adjustable rate mortgage is different from other ARMs in that the interest rate being charged can change every month and that the payment rate has nothing to do with the actual interest rate being charged. Currently this type of loan is offered with a very low starting payment rate, typically 1 to 1 1/2 % on owner occupied mortgages.
The option arm can be a very good tool for certain consumers but it can also be a very dangerous loan choice for others. Most consumers understand the mechanics of the standard fixed rate loan and understanding a fixed period loan like a 5/1 ARM is not too complicated, but the Option ARM is a different breed of cat and is considerably more difficult to understand. This makes it very important that the consumer has a good understanding of the loan prior to signing his loan papers.
If you are considering the Option ARM for your home financing, please email or call us and we will send out our special report. Option ARMs; The Good, the Bad and the Ugly.
Fixed period Option ARM Loans
A recently introduced hybrid of the Option ARM, this loan has a fixed rate of interest for a number of years, like a fixed period ARM, but retains the payment options of the traditional option ARM.
Looking to purchase a rental property? For the most part the same types of loans are available but the rates on those loans and, in some cases, the costs will not be as low. Financing up to 100% loan to value is now available. Different lenders do have different “hits” for these types of loans, so it makes good sense to shop around, which is exactly what we do for you. Contact us to discuss your investment scenario and will provide you with the necessary information to allow you to make an intelligent decision about your investment plans.
The first time homebuyer has many opportunities to benefit from special programs offered by lenders, municipalities and even the IRS. These programs include down payment assistance grants, closing cost grants, mortgage tax credits – all of which can provide a significant leg up to the 1st time homebuyer. This can result in a lower payment, more flexible qualifying, and long term tax benefits above that of the non first time buyer.
These programs often have limited funds, and are not always available. The programs may not allow all types of financing but it is definitely in your interest to inquire and see what is available in the city or state you are buying. It is a little more complicated, but is worth the effort if you fit the profile of the person that the programs are designed to help. Contact us and we will help you determine what is available.
Lot, construction and commercial loans, including apartment loans over 4 units are distinctly different from the standard residential mortgage. The lenders are different. The programs can be similar but often have distinct differences, and the underwriting is different. The loans need to be set up differently than a residential mortgage. It is often true that the programs and rates offered can vary greatly from one lender to the next. If you have interest in any of these specialty loans, give us a call or email us. Through our network of lender associates we are unique in our ability to obtain the optimum financing for your specific situation.
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