Fixed Rate Mortgages
The interest rate on a fixed rate mortgage remains the same throughout the entire term of the loan. Basically, your principal and interest payment will remain constant from the very first payment to the last payment. The most common fixed rate loan is a 30 year fixed. The only time your payment could change is if you have an escrow account for your taxes and insurance and your taxes or insurance change.
Adjustable Rate Mortgages
An Adjustable Rate Mortgage is a mortgage loan where the rate can change based upon a specific index rate. Consequently, payments made by the borrower may change over time as the interest rate changes. Usually we can offer an Adjustable Rate Mortgage with a fixed rate period and this can be a great option to help lower your monthly payments. For instance, if we did a 7 year ARM, the interest rate would be fixed for 7 years (at a much lower rate than a 30 year fixed) before it would have the possibility of changing. An Adjustable Rate Mortgage is also a great option especially if you only plan on being in the home for a few years because it will never end up adjusting. It allows you to take advantage of a much lower rate and payment for that time frame than you would have had on a 30 year fixed loan. Due to many of the unscrupulous subprime loans offered in the past 10 years, ARM loans have sometimes been given a negative connotation. However, the ARM loans available today in no way mirror the loans of the past and it may be a good option to look into.
Did you know that you are able to skip a monthly mortgage payment every time you refinance?
This is the financial instrument of an ARM that the loan is tied to. The most common indices are the 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit, and the 11th District Cost of Funds (COFI). Each of these indices move up or down based on conditions of the financial markets.
This is the fixed portion of an ARM that’s added to the index to determine your interest rate that you pay when the ARM becomes adjustable. The margin added to the index is known as the fully indexed rate.
These are caps placed on ARM’s that prevent your interest rate from adjusting more than a certain number of times within a certain time frame.
To reduce payment shock in a market when interest rates are rising some ARM’s contain payment caps instead of Interest rate caps. These loans generally cap your annual payment increases to 7.5% of the previous payment. One drawback is that they can lead to deferred interest or “negative amortization.”
Most ARM’s include a lifetime cap which puts a limit on the maximum an interest rate can adjust over a lifetime.
A balloon loan is a mortgage that does not fully amortize over the term of the note, thus leaving a balance due at maturity. You may currently have a balloon note and not know it. Most balloons are set up as a 30 year and due in 15 years. Balloon loans are predominantly offered on second mortgages. Balloon loans are quickly becoming a loan of the past and most lenders do not even offer balloon loans any longer because of the risk to the borrower at the balloon period. You may want to consider refinancing at today’s low rates if you have a balloon loan.
Interest Only Loans
These loans only require the interest portion of a loan to be paid monthly. Therefore, the balance of the loan does not change monthly and if the borrower never makes more than the required interest only payment they will still owe the same amount of their original note. Interest only loans are a great option for borrowers looking to minimize their monthly payments. Most interest only loans are interest only for a period of years and then become fully amortized for the duration of the loan period.
A special type of loan made to homeowners to enable them to convert the equity in their home to cash to finance living expenses, home improvements, in home health care, or other needs.
- You may be able to cut the term down on your mortgage and your monthly payment down in some cases because interest rates are much lower on shorter term mortgages than they are on a 30 Year Fixed Mortgage.
- We have financing available up to 97.75% of what your home is currently worth.
- There are Streamline Programs available for certain borrowers where there is very little documentation required.