Types of Loans
30
Year Fixed Rate Mortgage
20 Year Fixed
Rate Mortgage
15 Year
Fixed Rate Mortgage
Adjustable Rate Mortgage
7/1 ARM
5/1 ARM
3/1 ARM
1/1 ARM
2/1 Buy Down Mortgage
5 Year Balloon
30 Year
Fixed Conforming - Program Description
This loan has a fixed rate for the lifetime of the loan with no pre-payment
penalty. The traditional thirty-year fixed-rate mortgage has a constant
interest rate, so that your monthly payment does not change. This may
be a good choice if you plan to stay in your home for seven years or
longer. If you plan to move within three to five years, then adjustable-rate
loans are usually cheaper. When interest rates are low, fixed-rate loans
are generally not that much more expensive than adjustable-rate mortgages
and may be a better deal over time, because you can lock in the rate
for the life of your loan.
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Rate
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20 Year
Fixed Conforming - Program Description
This loan has a fixed rate for the lifetime of the loan with no pre-payment
penalty. The traditional twenty-year fixed-rate mortgage has a constant
interest rate, so that your monthly payment does not change. This may
be a good choice if you plan to stay in your home for seven years or
longer. The 20-year fixed mortgage is great for faster equity build
up without the higher monthly payments of a 15-year fixed mortgage loan.
If you plan to move within three to five years, then adjustable-rate
loans are usually cheaper. When interest rates are low, fixed-rate loans
are generally not that much more expensive than adjustable-rate mortgages
and may be a better deal over time, because you can lock in the rate
for the life of your loan.
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Rate
15 Year
Fixed Conforming - Program Description
This loan is fully amortized over a fifteen-year period and features
constant monthly payments for the term of the loan. There are no pre-payment
penalties. The 15-year fixed mortgage is great for faster equity build
up. You can pay-off your loan in half the time and at a slightly lower
rate than a 30-year mortgage. By cutting, your loan in half you can
save up to $200,000 in interest payments over the lifetime on the average
mortgage loan. The disadvantage is that, with a 15-year loan, you commit
to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate
loan and voluntarily make larger payments that will pay off their loan
in 15 years. This approach is often safer than committing to a higher
monthly payment, since the difference in interest rates is not that
great.
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Rate
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Adjustable Rate
Mortgage (ARM)
Fixed rate mortgages were the standard of the lending industry for decades.
But high inflation in the 1970s and high interest rates in the early
1980s made fixed rate mortgages much less attractive both to borrowers
and lenders. High interest rates caused mortgage rates to soar beyond
the reach of many consumers. To alleviate this situation, the adjustable
rate mortgage provided consumers with lower interest rates. These lower
rates make housing more affordable. In addition, the borrower may qualify
for a larger loan based on current income in relation to payments in
the loan's early years. In recent times, we have seen that an ARM mortgage
is about the same interest rate as a 30 Year Fixed Mortgage. Depending
upon your mortgage need, we can determine if an adjustable rate mortgage
is beneficial for you. When it comes to ARMs there's a basic rule to
remember...the longer you ask the lender to charge you a specific rate,
the more expensive the loan.
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7/1 ARM
A "7/1 ARM" has a fixed monthly payment and interest rate
for the first seven years. The loan then turns into a traditional adjustable-rate
loan based on then current rates for the remaining 23 years. After the
seventh year, the interest rate may adjust accordingly to market conditions.
Depending on market conditions, your interest rate may go up or down.
Usually, adjustable rate mortgages have a ceiling where the interest
rate can only increase by 2% each year with a maximum increase of 6%
for the life of the loan. Keep in mind that the average person kept
their mortgage loan for 4.17 years in 1997. Most people refinance every
5 to 7 years since their financial situation changes due to debt consolidation,
college education, home improvements, or interest rates lower.
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Rate
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5/1 ARM
A "5/1 ARM" has a fixed monthly payment and interest rate
for the first five years. The loan then turns into a traditional adjustable-rate
loan based on then current rates for the remaining 25 years. After the
fifth year, the interest rate may adjust accordingly to market conditions.
Depending on market conditions, your interest rate may go up or down.
Usually, adjustable rate mortgages have a ceiling where the interest
rate can only increase by 2% each year with a maximum increase of 6%
for the life of the loan. It is a good choice for people who expect
to move (or refinance) before or shortly after the interest rate adjustment
occurs.
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Rate
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3/1 ARM
A "3/1 ARM" has a fixed monthly payment and interest rate
for the first three years. The loan then turns into a traditional adjustable-rate
loan based on then current rates for the remaining 27 years. After the
third year, the interest rate may adjust accordingly to market conditions.
Depending on market conditions, your interest rate may go up or down.
Usually, adjustable rate mortgages have a ceiling where the interest
rate can only increase by 2% each year with a maximum increase of 6%
for the life of the loan. It is a good choice for people who expect
to move (or refinance) before or shortly after the interest rate adjustment
occurs.
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Rate
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1/1 ARM
A "1/1 ARM" has a fixed monthly payment and interest rate
for the first year. The loan then turns into a traditional adjustable-rate
loan based on then current rates for the remaining 29 years. After the
first year, the interest rate may adjust accordingly to market conditions.
Depending on market conditions, your interest rate may go up or down.
Usually, adjustable rate mortgages have a ceiling where the interest
rate can only increase by 2% each year with a maximum increase of 6%
for the life of the loan. It is a good choice for a people who want
the lowest payment possible the first year. Additionally, people who
know that they will pay a large principle reduction to reduce their
mortgage balance within one year may want to go with a 1/1 ARM.
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for Details
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2/1 Buy Down
Mortgage
The 2/1 Buy-Down Mortgage allows the borrower to qualify at below market
rates so they can borrow more. Usually, the initial starting interest
rate is 1% to 2% below the 30 Year Fixed Conforming interest rate. The
below market interest rate equivocates into lower payments the first
couple of years of the loan. The initial starting interest rate increases
by 1% at the end of the first year and the rate will adjust again by
another 1% at the end of the second year. It then remains at a fixed
interest rate for the remainder of the loan term. Borrowers often refinance
at the end of the second year to obtain the best long-term rates. However,
keeping the loan in place even for three full years of more will keep
their average interest rate in line with the original market conditions.
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for Details
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5 Year Balloon
Mortgage
Balloon Loans are short-term loans (usually five years or less)
that become due at a predetermined date. On that date, the full outstanding
loan balance must be repaid.
Borrowers find these loans attractive during times of high interest
rates. Lenders offer the loans at lower rates than fixed rate loans
because of the short term. Borrowers often plan to refinance these loans
when they come due rather than pay them off. If rates have lowered considerably
by that time, the borrower has saved a considerable amount of interest.
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for Details
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