|
Mortgage Options & Loan Types |
30-year conventional fixed rate loan - benefits include:
-
Monthly payments for principle and interest remain the same over
the life of the loan
-
Lower monthly payments when amortized over a 30-year payment
period.
|
10, 15 or 20-year conventional fixed rate loans - Benefits
include:
-
Monthly payments of principle and interest remain the same over
the life of the loan
-
Substantial savings of interest over the life of the loan
-
Payments are approximately 25-30% higher when amortized over a
shorter period of time.
|
No-Point/Zero Closing Cost loan - Benefits include:
-
Less cash needed at closing. The interest rate will usually be ?
to ? of a percent higher when compared to loans that have points
to pay at closing.
|
7-year fixed rate balloon w/ 30-year amortization - Benefits
include:
-
Slightly lower rate and/or less fees than the conventional 30-year
fixed rate loan.
-
Payment of principle and interest remains the same over the 7-year
period of time (at the end of 7 years, you will need to pay off
the remaining balance with either a lump sum of cash or re-finance
the remaining loan amount).
|
Adjustable Rate Mortgages (ARM) - There are many options with ARMs;
the most popular tends to be the 1-year ARM with a 30-year
amortization schedule. Benefits include:
-
Lower interest rate for the 1st year
-
Easier to qualify for the loan amount
-
You can qualify for a larger loan amount
-
A year ARM offers the ability to adjust downward at the 1 year
anniversary of your loan.
-
I am not a big fan of ARM's because interest rates have been at or
near historical levels for the past five years, so an ARM just
doesn't make sense. Anyone applying for this loan type needs to
be certain that they understand what the future interest rate
adjustments are or you can get into big trouble.
|
80/10/10 Conventional Loans
-
a loan program that
consists of an 80% first mortgage + a 10% second mortgage + a 10%
down payment. In this case, since there is no mortgage insurance
required, the buyer will save the monthly premium.
-
This
loan type (or variations of it) was extremely popular during the
past 3-5 years. The primary purpose of this loan is to avoid paying
PMI (private mortgage insurance) for buyers who were unable to put
down 20%.
-
It is
always best to consult with a
mortgage broker on the best type of loan program that best meets
your needs and does not over-extend your financial situation.
|
|
|
|
Key Components to Most Adjustable Rate
Mortgages (ARM): |
-
Index Rate - the rate to
which the interest rate on an adjustable rate loan is tied. One of
the more popular indexes used is the 1-year U.S. Treasury bill.
|
-
Margin - the amount
added to the index rate that represents the lender's cost of doing
business.
|
-
Interest Rate Cap Per
Adjustment - the maximum amount a borrower's interest rate may
increase or decrease at the time of adjustment..
|
-
Life Cap - this is the
ceiling that the note rate cannot exceed over the life of the loan.
|
-
Amortization - a period
of time in which gradual repayment of debt occurs by means of
systematic payments of principle and/or interest. At the end of the
time period the balance is zero.
|
|
|
What Your Monthly Mortgage Payment
Consists of: |
-
Principle balance: this represents the money you originally borrowed
and are paying back over the life of the loan.
|
|
|
-
Real estate taxes: normally 1/12 of the most recent tax bill.
|
-
Insurance (Home Owners): normally 1/12 of the yearly policy amount.
|
-
Private Mortgage Insurance (PMI) - Some borrowers who have less than
20% down are required to pay PMI.
|
-
Assessments (if any, condo, townhome, single family home) -
depending on the type of dwelling, you may or may not be required to
pay assessments.
|
| |
|
Questions to Ask Lenders |
-
Based on your situation, what looks like the best program for me &
why?
|
-
What is the projected time for processing and closing a loan?
|
|
|
-
If PMI (Private Mortgage Insurance) is required, when and how does
it go away?
|
-
What about your rates, terms, fees, etc - are they negotiable?
|
-
Are there any special underwriting guidelines you follow?
|
-
What if rates go down during the ?lock-in? period?
|
-
What do you need to get a loan approved?
|
-
Are there any "junk
fees" or administrative/doc prep fees? If some are identified,
can I have it in writing that these will be removed? If not, I
will find another lender.
|
