Resources: Mortgage Types Homebuyers have a wide variety of financing options available. Loan programs are available to suit the individual needs of buyers. The following is an introduction to some of the more common loan types. Please contact our preferred mortgage lender "1 Source Mortgage" for more information regarding available loan programs. Fixed Rate Mortgages Fixed rate mortgages, typically 15 or 30 years, are considered to be conventional loans with relatively low risk for home buyers. Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured so that repayment is made in equal installments, "amortized", over the course of the loan term. They are low risk in that the rate is locked and will not change, even with fluctuating interest rates. more info Interest-Only Mortgages An interest-only loan is a loan in which for a set term the borrower pays only the interest on the principal balance, with the principal balance unchanged. At the end of the interest-only term the borrower may enter an interest-only mortgage, pay the principal, or (with some lenders) convert the loan to a principal and interest payment (or amortized) loan at his/her option. A typical interest-only mortgage involves a five or ten year interest-only period, after which time, the principal balance is amortized for the remaining term. more info. Adjustable Rate Mortgages Adjustable Rate Mortgages, also known as ARMs, are more risky in nature because the interest rate is fixed for a specified period of time, often 3-5 years, and then fluctuates over the term of the mortgage at an indexed rate. It is similar to a fixed rate mortgage only in that the loan is usually amortized over 30 years. ARMs offer a lower introductory interest rate for the fixed term, resulting in a lower initial payment. more info. Option ARMs Option ARMs are a type of Adjustable Rate Mortgage that have gained popularity over the last few years because of their flexibility in monthly payment options which has enabled people to afford homes they would otherwise not be able to purchase. The first payment option is the minimum payment option, an interest only payment based on a very low introductory rate (usually 0-4%). After the introductory period, the minimum payment changes annually. If the minimum payment is made after the introductory period, which usually holds only for the first few months, it usually is not enough to pay all of the interest charged on the loan and the unpaid interest will be added to the principal balance (deferred). The other payment options are usually a conventional 30 yr. ammortized payment and an interest only payment. more info. Piggyback Mortgages Piggyback mortgages are very popular because they allow up to 100% financing for a mortgage without having to pay Mortgage Insurance (MI). A "piggyback mortgage" is a home financing option in which a property is purchased using more than one mortgage from either the same lender or from two or more lenders. There are three common types of piggyback loans: the 80-10-10 loan, the 80-20 loan (also known as the 80-20-0 loan) and the 80-15-5 loan. In each of the aforementioned instances, the first number indicates that 80% of the home's purchase price will be financed by a mortgage of lender number one; the second number indicates the percentage amount of a loan secured by a second mortgage with the same lender or a different lender; and the third number indicates the down payment percentage. more info. Stated Income Mortgages Stated income programs are a form of mortgage loan program that is part of a family of "low-doc" and "no-doc" loans, meaning little or no documentation is required for the loan. Prospective home purchasers who cannot show income but have the income and good credit history to obtain a mortgage loan are prime candidates for exercising stated income home loans. To qualify for this loan, the borrower only needs to state income for the last two years or more and have good credit. The typical profile of a borrower participating in a stated income mortgage is someone with an irregular income who works on commission or is self-employed. Stated income mortgages usually involve higher interest rates and are subject to a higher down payment. more info Imperfect Credit Mortgages Borrowers with an imperfect credit rating may still quality for a home loan, although the rates me be "subprime". Subprime loans have higher rates than equivalent prime loans. Lenders consider many factors in a process called "risk-based pricing" when they come up with mortgage rates and terms. This makes it impossible to generalize about subprime rates. They are higher, but how much higher depends on factors such as credit score, size of down payment, and what types of delinquencies the borrower has in the recent past. A subprime loan also is more likely to have a prepayment penalty, a balloon payment, or both. A prepayment penalty is a fee assessed against the borrower for paying off the loan early -- either because the borrower sells the house or refinances the high-rate loan. A mortgage with a balloon payment requires the borrower to pay off the entire outstanding amount in a lump sum after a certain period has passed, often five years. However, these programs allow someone with imperfect credit to purchase a home and with timely payments improve their credit score more rapidly. more info Balloon Payment Mortgages A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size. Balloon payment mortgages are more common in commercial real estate than in residential real estate. The shorter term of a balloon payment mortgage gives the lender better security against interest rate risk than a 30-year fixed-rate loan, while giving the borrower the security of a fixed payment and possibly a lower interest rate than a 30-year fully-amortizing fixed-rate loan. more info Reverse Mortgages A reverse mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home (equity) into cash without having to move or to repay the loan each month. The cash can be paid in many different ways but the most common is a monthly cash payment or lump sum payment. Elderly are perfect candidates for this type of loan because they often are not in wealth building mode and can use the supplemental cash to live day to day. more info, Home Equity Loans A home equity loan is a type of loan in which the borrower uses the equity in his home as collateral. These loans are sometimes useful for families to help finance major home repairs, medical bills or college educations. A home equity loan creates a lien against the borrower's house. The borrower receives a lump sum at the time of the closing and cannot borrow further. The maximum amount of money that can be borrowed is determined by variables including credit history, income, and the appraised value of the collateral, among others. It is common to be able to borrow up to 100% of the appraised value of the home, less any liens, although there are lenders that will go above 100% when doing over-equity loans. Along with refinancing the borrowers home, a home equity loan can be used to come up with a down payment on an additional home, if the borrower has the income and credit standing to get a loan on the home being purchased. more info Home Equity Lines of Credit A Home Equity Line of Credit (often called HELOC) is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower's equity in his/her house. A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses the line of credit to borrow sums that total no more than the amount, similar to a credit card. HELOC funds can be borrowed "on demand" and you pay back only what you use plus interest. Depending on how much you use the HELOC, you will have a minimum monthly payment requirement (often "interest only"); beyond the minimum, it is up to you how much to pay and when to pay. At the end of the draw period, you will have to pay back the full principal amount borrowed either in a lump-sum balloon payment or according to a loan amortization schedule. Another important difference from a conventional loan: the interest rate on a HELOC is variable based on an index such as prime rate. more info  © 2007 Agent Image, Inc. All rights reserved. | Terms | Login Design by Agent Image - Real Estate Web Site Design