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Fixed Rate Mortgages
- Available in either 10, 15, 20, 25, 30, and 40 year terms. These programs offer a fixed
rate payment throughout the duration of the specified term. Any principal reduction will
generally not lower the original loan payment, which is set at the inception of the loan. These programs are typically straightforward as there are no hidden agendas with fixed rate mortgages; if you have a specific payment for a specified period, the loan generally will be paid in full by the end of the term.
- Some 30-year fixed rate loans will offer either a five (5), ten (10), or fifteen (15) year interest only option. This feature will allow the consumer to make minimum interest payments and/or principal and interest payments within the specified interest only period, either five, ten, or fifteen years. If no principal were to be paid during this time frame, then a new principal and interest payment will be set for the remaining amortization of the loan. For example, a 30-year fixed rate with a ten (10) year interest only option will allow the consumer to make interest-only payments of $3,250 @ 6.5% on a $600,000 loan for the first 10 years. If no principal payments were to be made during this time, the remaining payment for twenty (20) years would be $4,473.44. However in this same example, if the consumer paid down the principal by $200,000 in the first 10 years of the interest only period, then the remaining payment for twenty (20) years would be $2,982.29. Keep in mind that new payments will be generated within the specified interest only period if any added principal curtailment reduction is made.
Hybrid Loans
- Available for either 3, 5, 7, and 10-years of a 30-year amortized loan. These mortgages generally offer a lower interest rate than your traditional 30-year fixed mortgage before converting into an adjustable rate mortgage. The rate and payment is set without change for the initial fixed period, then converts into either a semi or annual adjustable rate mortgage. Often to go along with the fixed term would be an interest-only feature. Similar rules would apply as specified above on the interest-only options. Some programs will allow for a forty-year amortization. Additionally, some programs offer a pre-payment penalty up to three years that will offer a better interest rate.
Adjustable Rate Mortgages
- A mortgage whose interest rate will fluctuate with market conditions throughout the term of the loan. These mortgages will often accommodate 30 or 40-year terms. Although payments can be fixed for a specified term from one to five years, several payment options can persist for the first five (5) to ten (10) years of the amortization; minimum principal or interest-only payment, and either a fully amortized thirty or fifteen year terms available. Those electing these types of mortgages need to be careful and understand the dynamics of this loan since "negative amortization" or "deferred interest" can take effect if one is not aware of the structure. Yet, at the same time, these types of loans can be attractive if utilized to the consumer's benefit. These mortgages can often be appealing to those who want the flexibility of several payment options, generally lower interest rates than fixed mortgages, and increased cash flow.
- Also available are no negative amortizing adjustable rate mortgages that are tied in to either a one, six, or twelve month London Interbank Offered Rate index (LIBOR), a Treasury index loan that is considered to be a less volatile index, or some other type of index. Other indices often utilized are the Constant Maturity index (CMT) and 12-MTA. Adjustable rate mortgages will typically add a "margin" or "spread" to specific index to calculate the changing interest rate on either a monthly, quarterly, semi-annual or annual basis.
| 1-month LIBOR |
2.581% |
| 6-month LIBOR |
3.121% |
| 1-year LIBOR |
3.173% |
| 1-year CMT |
1.42% |
| Prime Rate |
4.00% |
| 11th District COFI |
2.769% |
| 12-MTA |
2.256% |
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| * As of November 2008 |
Balloon Mortgages
- This program functions like a normal 30-year fixed mortgage - giving the borrower one fixed payment that is amortized for the specified amount of years, but the unpaid balance will become due in full at the balloon term specified. This mortgage type is often appealing since it offers lower payments than your traditional 15 or 20 year term loans. Balloon mortgages are prevalent with 2nd Fixed Rate Mortgages.
Sub-Prime Loans
- These types of loans were made available to consumers with less than stellar credit. Available loan types are for consumers with prior or current late mortgage payments, judgments, foreclosures, bankruptcies or other derogatory marks.
Home Equity Lines of Credit (HELOC)
- These programs are credit lines against the existing equity of a property - allowing borrowers to draw funds up to the qualified limit. Terms will vary and there will be a period within the term requiring principal and interest payments to be repaid. These types of loans can be useful to avoid mortgage insurance (better known as PMI), tap into existing equity to complete future renovations, debt consolidations, or other investment opportunities that may arise. Interest is paid only on what is pulled or drawn. If funds are not drawn, then there will be no interest payments due. HELOC's are generally tied to the U.S. prime rate. These types of mortgages can be riskier than a fixed rate second loan since they will float with the market and capping out at 21% or more. There are no periodic interest rate caps to limit the interest rate fluctuation; however, most lines of credit offer a fixed rate partition that allows the borrower to fix a portion if not all of the balance in full to a specified amortization of choice. These types of loans have grown in popularity to either pay down principal on the first mortgage to better accommodate a desired monthly payment, or simply as a security tool for emergency usage for cash.
Fixed Rate Seconds
- These programs generally offer a 15, 30, 30/15 (thirty-year loan term with a balloon feature at the end of the 15th year) amortization schedule. Fixed rate second mortgages will generally offer a higher rate of interest than a first mortgage to offset lender risks of foreclosure. Similarly to the HELOC, fixed rate second mortgages have been used to avoid mortgage insurance when less than 20% down payments are desired.
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