Fix Rate Mortgage

A fixed–rate mortgage is the standard against which most other mortgage products are measured. Fixed–rate mortgages feature a fixed interest rate for the life of your loan (known as the term), so your monthly payments (principal plus interest) will always be the same. When choosing a fixed-rate mortgage, most home buyers choose a 30–year or 15–year term, though 10 – 20 year terms are also available. If you have a 30–year mortgage, the interest rate you pay will be locked in for all 30 years. At the end of the 30th year, if payments have been made on time, the loan will be paid off in full.

Fixed–rate loans are the most advantageous when rates are low and you plan to stay in your home for an extended period of time. Most fixed–rate loans permit you to pay the loan balance off before the end of the term with no prepayment penalty. You may also add extra dollars to your scheduled monthly payments enabling you to pay off your loan earlier. The length of the term of your fixed-rate mortgage affects both the monthly payment on the mortgage and the number of years needed to pay the loan in full. As a rule of thumb, the longer the term, the lower the payment.

30–year fixed–rate: A 30–year fixed–rate mortgage provides the borrower with a fixed rate for the entire 30–year term of the loan. With this loan, the borrower will pay the loan in full if he or she makes the required principal and interest payment for 30 years. The primary benefit of a 30–year fixed-rate versus other fixed–rate loans is that the payment is the smallest since the term is the longest.

20–year fixed–rate: You can shorten your mortgage term by 10 years and usually get a lower interest rate with the 20–year mortgage. Another advantage with the shorter term, besides paying your loan off sooner, is that you'll also build more equity in your home sooner than you will with a 30–year loan. Your monthly payments will be higher, however, compared to a 30–year fixed-rate mortgage.

15-year fixed–rate: This loan term has the same benefits as the 20–year term (i.e., quicker pay–off, faster equity build–up, lower interest rate), but you will also have a higher monthly payment.

Adjustable Rate Mortgages (ARMs)

Adjustable–rate mortgages (also called ARMS) have a unique interest–rate feature that allows changes or adjustments to the interest rate over the life of the loan. An ARM may be attractive to you if you desire a slightly lower interest rate during the initial stages of owning your home. If you expect that your income will rise in the future, or if you are not planning to stay in the same home for long, an ARM may be right for you.

How often your interest rate adjusts is determined by the term of the loan. You may choose a 6–month, 1–year, 2–year, 3–year, 5–year, or– a 7–year ARM term, or even some other term, There is usually an initial period of time during which the rate won't change. This might be anywhere from six months to several years. For example:

*A 3–year ARM would mean the initial interest rate would stay the same for the first three years and then would adjust each year beginning with the fourth year.

*A 7–year ARM would mean the initial interest rate would stay the same for the first seven years and then would adjust each year beginning with the eighth year.

In addition, most ARM loans have annual and lifetime "caps." A cap is the maximum amount by which a payment or a rate can increase. For example, the interest rate on an ARM loan with 2% annual caps cannot increase by more than 2% per year. An ARM loan with a 6% lifetime cap can never have a rate higher than 6% over the starting rate, and so on,

Most adjustable–rate loans can be refinanced easily if the rate on the loan rises. That fact can offset some of the interest rate risks associated with an ARM. Ask your Mortgage Professional for more details.

Balloon Loans

Like an adjustable–rate mortgage, a balloon mortgage offers an initial interest rate that is lower than a fixed–rate mortgage. The rate stays low during the initial years of the loan and then quickly "swells" to a single, final balloon payment. The balloon payment pays off the entire balance.

The most common balloon loans are 5–year or 7–year balloons that offer low rates for either five or seven years before the balloon payment is due.
If you plan on either selling your home, paying it off, or refinancing it before the balloon payment is due, or if you are expecting a large lump sum of cash in the future, then this type of mortgage may make good financial sense.

Unconventional Mortgages

Many home buyers simply don't have a down payment, haven't yet established a strong credit history, or are unable or unwilling to supply documentation for a "traditional" mortgage. To accommodate the needs of these mortgage borrowers, most Mortgage Professionals offer mortgage alternatives that have proven attractive and affordable for home buyers over the years. Some of these are described below.

100% Mortgages

These are often ideal for first–time buyers and buyers who have not saved a large down payment, A no–money–down mortgage is designed to offer home ownership opportunities to individuals with good credit, but who lack the ability or desire to make a down payment. A no–money–down loan may be available to purchase an existing or new construction home. While you may not be required to make a down payment, you may have to pay some closing costs associated with the transaction. Your Mortgage Professional can provide you with more information.

103% Mortgages

Another variation–of a no–money–down loan is a 103% mortgage. A 103% mortgage permits you to borrow up to 103% of the purchase price of your home. The additional 3% can help you pay for closing costs or financed mortgage insurance premiums. This option is ideal for borrowers with solid credit histories who have the income to make regular mortgage payments, but lack the assets to make a down payment or pay closing costs.

Federal Housing Administration Loans (FHA)

FHA loan programs help low and moderate income families become home owners by lowering some of the costs of their mortgage loans. FHA loans are also a good fit for borrowers with past credit problems or limited resources for a down payment. Underwriting guidelines are more lenient than with other loans, such as conventional loans.

The most popular FHA loan has a minimum cash investment requirement of 3%, but permits 100 percent of the money needed at closing to be a gift from a relative, nonprofit organization, or government agency. FHA also allows you to perform a "streamline" refinance when rates go down to lower your interest rate. This program is inexpensive and easy to execute. Ask your Mortgage Professional about the streamline refinance option available to FHA borrowers.

Veteran's Administration Loans (VA)

For active–duty military, veterans, and reservists, VA loan programs offer low rates and low or no–money–down options. The VA home loan program gives you the ability to buy with no out–of–pocket costs. As the VA program requires no mortgage insurance, monthly payments are frequently less than any other no–down–payment loans. The VA also offers a low–cost Interest Rate Reduction Loan (IRRL) program allowing you to refinance and lower your mortgage payment inexpensively. Finally, the maximum VA loan amount varies, so check with your Mortgage Professional for up–to–date information.

Alternative Documentation Loans

Alternative documentation loans are available for certain borrowers who are unwilling or unable to document certain elements of a typical mortgage application. Some specific alternative documentation loans include the following:

Stated Income Loan: The borrower simply states his or her income for the loan file, but the income is not verified or documented.

No Income Loan: The borrower does not state or document any income for the loan file.

Stated Asset Loan: The borrower simply states his or her assets for the loan file, but the assets are not verified or documented.

No Asset Loan: The borrower does not state or document any assets for the loan file.

A Combination of the Above

Certain loan programs allow for a combination of alternative documentation solutions such as:

Stated Income/Stated Asset: The borrower simply states his or her income and assets for the loan file, but neither the income nor the assets are documented.

No Income/No Asset: The borrower does not state or document his or her income or assets for the loan file.