Fixed Rate Mortgage
This is the most common type of loan. The fixed rate mortgage offers a fixed payment and interest rate over the life of the loan that will never change. All mortgages are "amortized" over a specific number of months. What this means is that the payback of interest and principal is spread out equally over this period of time. Fixed rate mortgages are typically calculated on 15, 20, or 30 year terms, and in some cases 10 and 40 year terms. Generally, the best rate can be obtained with a 15 year mortgage, with the 20 year offering about the same rate as the 30 year.
Adjustable Rate Mortgage (ARM)
Adjustable Rate Mortgages are mortgages with a fluctuating interest rate that is calculated on a specified schedule. Most ARMs have a fixed period at the beginning of the term during which the rate does not change. Most ARMs also are on a 30 year term. The advantage of an ARM is that it offers a lower interest rate and payment than a 30 year fixed. This loan is designed mainly for a family who plans to move before the ARM starts to adjust.
ARM interest rates are calculated based on an economic index such as the LIBOR or US Treasury index. Once you get to the adjustable period of the ARM, the lender calculates your rate by adding the current index value to a "margin" or fixed portion of your loan. The margin never changes during the entire 30 year term. There are "caps" which will protect you to a certain extent, the purpose of which are to prevent the interest rate from fluctuating too much, too fast.
PayOption ARM
This loan program offers four payment options each month and can be a powerful way to generate cash flow. The loan is popular with real estate investors.
VA
For active duty or honorably discharged Veterans, the VA loan can be an excellent choice. VA offers extremely flexible qualification, loan amounts up to 100% of the purchase price.
FHA
Similar to VA, FHA offers very flexible terms for home buyers that enable many people to buy a home that could not under traditional financing guidelines. FHA offers up to 97% financing and is a great choice for many people.
"80/20"
This is a term used to describe a way to structure 100% financing.
Construction Loans
Construction Loans offer financing to help you build a home on a lot you already own or a lot you want to buy as part of the project. When obtaining a construction loan, if you already own the lot, this equity can count as your down payment. During construction phase, the builder will take draws to build the home, and you only make payments on the amount drawn up to that point. Once construction is complete, the loan rolls over into a permanent mortgage, so you do not need to close twice. There is a lot involved in construction financing, but an experienced mortgage broker can help guide you through the process.
No Doc Loans
Most of the time, this type of financing is used for self-employed borrowers who cannot document their income. These loans allow you to "state" your income and you do not have to provide documentation to prove it. Interest rates are higher on these types of loans, but are many times the only option, especially for self-employed people.
Interest Only Loans
Almost any loan can have an interest only feature. This allows you to make interest only payment for a certain number of years at the beginning of the loan. This will give you a lower payment, but you are not paying down the balance of your mortgage.
Negative Amortization Loans
This is a type of loan that allows you to make a payment lower than the amount of interest you pay each month. The difference between your payment and the interest payment is added to your balance, so the amount of money you owe can actually go up over time. The most prevalent negative amortization loan in the marketplace today in the PayOptionArm.
Sub-Prime
This is a term used to describe loans made to people with credit problems. Generally, if your credit score is below 620, you fall into this category. Sub-Prime loans have higher rates than traditional mortgages because, based on a sub-prime borrower's credit history, this loan is higher risk to the lender. Sub-prime loans are typically ARMs fixed for 2 years and many times have a prepayment penalty attached to them. The goal during the two years of fixed payments is to improve the credit score and refinance into a better loan program.
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