 |
|
|
|
|
|
|
|
- Fixed Rate Mortgages
- A loan in which the interest rate does not change during the entire term of the loan. Fixed rate mortgages are available in 15, 20 and 30 year terms.
- Features of Fixed Rate Mortgages:
- Enables borrowers to lock in an interest rate creating a fixed monthly payment for the life of the loan.
- To receive a lower interest rate and build equity faster, borrowers should choose the shortest loan term they can afford.
- Who should consider a Fixed Rate Mortgage?
- You like the stability of fixed payments allowing you to plan your finances and stick to your budget.
- You plan to stay in your home for many years.
- Adjustable Rate Mortgages (ARMS)
- A mortgage where the interest rate on the loan is periodically adjusted based on a financial index. Payments made by the borrower change over time with the fluctuating interest rate.
- Features of ARMS:
- ARMS have interest rate caps that prevent the rate from increasing above a pre-determined amount governed by state usury law.
- Fixed period ARMS (see below) offer some protection because the rates are fixed for a period of time such as 3, 5 and 7 years vs. a standard ARM where rates can change every 6 or 12 months.
- ARMS are attractive because they offer start rates that are lower than the interest rates on fixed rate loans. This typically enables you to qualify for a larger loan.
- Who should consider an Adjustable Rate Mortgage?
- You do not plan on staying in your home for many years.
- You need a lower initial rate to afford to buy the home you want
- You are confident your income will rise enough in the coming years to handle any increase in payments
- How ARMS work:
- An adjustable-rate mortgage (ARM) has an interest rate that is fixed for the first 1 to 10 years (iLendit ARMS offer fixed period of 3, 5 and 7 years) then adjusts periodically based on financial market conditions. During the initial fixed period, an ARM has a lower interest rate than a comparable fixed rate mortgage, so you'll save on your monthly payments during the early years of your loan term. After the initial fixed-rate period, the remainder of the loan term is divided into adjustment periods of one year or 6 months (iLendit ARM's adjust annually). At the end of each adjustment period, the interest rate may change based on the loan's Index, margin and rate caps:
- Index
- The interest on a publicly traded debt security that is used to calculate the interest rate on an ARM. Available indexes are:
- 1-year US Treasury security click here to see historical index
- The London Interbank Offer Rate - commonly referred to as the "LIBOR" index click here to see historical index
- Margin
- A fixed percentage (usually 2 to 3 per cent) that is added to the index at each adjustment period to determine the loans new rate.
- Rate Cap
- iLendit ARMS have rate caps to protect the buyer from severe increases in rates. Caps are expressed in the following format: 3/2/5. The first number means that your rate cannot go over 3 percentage points from the initial rate at the time of your first adjustment. The second number means that at the beginning of each adjust period, your new rate cannot be 2% more than the previous years rate and the 3rd number simply means that your rate can never exceed 5% of your initial rate. This 5% is also referred to as the "ceiling" or "lifetime" cap.
- Floor
- Just as there are caps on how high a rate can go, there is a limit - or floor - on how low it can go. iLendit ARMS have a floor that is equal to the margin.
- Example
- One is shopping for an adjustable rate mortgage and is quoted the following information:
- The introductory rate on a 3/1 ARM is 5.5%
- Margin is 2.75
- Index used is 1 year LIBOR
- Caps are 3/2/5
- Floor equals the margin
- For illustration purposes, lets assume that the index (LIBOR) is 4% at the time of the first adjustment, then 4.5% at the time of the 2nd adjustment period
- Translated, this means:
- For the first 3 years you rate is fixed at 5.5% then adjusts every 12 months thereafter.
- The rate at the first adjustment period (starting on the 37th month - or 4th year) will be the index of 4% plus the margin at 2.75 for an adjusted rate of 6.75, not to exceed 8.5% (capped at 3% over the initial rate of 5.5%).
- The rate at the second adjustment period (starting on the 49th month - or 5th year) will be the index of 4.5% plus the margin of 2.75 for a new adjusted rate of 7.25 not to exceed 8.75% (capped at 2% over the previous years rate of 6.75%)
- Third and subsequent adjusts will be the index plus the margin capped at 2% above the previous years rate.
- If you are worried about the possibility of your rate changing every 6 or 12 months then you might want to consider a fixed period ARM. A fixed period ARM starts with a lower rate than a standard fixed rate loan but will remain fixed depending on the fixed period you choose which typically is 3, 5, 7 or 10 years. At the end of the fixed period your rate will change every year based on the index plus the margin. This is why lenders often refer to these fixed period ARMS or 3/1, 5/1, 7/1 etc.
- FHA Loans
- A FHA loan is a loan insured by the FHA, or Federal Housing Administration.
- Features of FHA Loans:
- A FHA loan has a mortgage principal limit set by the FHA that depends upon property location.
- The most popular FHA loan has a very low down payment requirement of 3.5 percent.
- A FHA loan may have either a fixed or adjustable rate.
- FHA lending guidelines are less strict than those applicable to conventional loans.
- FHA guidelines allow the seller or other third parties (real estate agents, builders, etc.) to contribute up to 6% of the sale price towards the buyer's closing costs, discount points and other prepaid fees.
- Who should consider a FHA Mortgage?
- FHA loans are designed for low to moderate income borrowers who are unable to make a large down payment.
- Those who may be unable to meet the lending guidelines for conventional loans.
- First time home buyers who can include most of their closing costs and fees in their mortgage.
- Low Down Payment Loans
- Many people can afford a mortgage payment but do not have the typical 5% down payment.
- Who should consider a Low Down Payment Loan?
- Limited cash to put down
- Wants a loan amount less than or equal to $417,000
- Wants the stability associated with a fixed rate
- No Down Payment Loans
- These loans are for those who do not want to make a down payment. Borrower's have a choice of two different types of loans. One kind is made up of 2 loans, a 1st @ 80% LTV and a 2nd for 20%. This type of no down payment loan is popular because it avoids mortgage insurance. The other kind is a single loan for 100% of the purchase price. Mortgage Insurance is required on the 100% single loan.
- Who should consider a No Down Payment Loan?
- You do not want to make a down payment
- You want to eliminate the need for Private Mortgage Insurance (PMI) (80/20 combo loan)
- Interest Only Loans:
- You pay only the interest for the first 10 years of the loan. The balance is then amortized over the remaining term of the loan.
- Who should consider a Interest Only Loan?
- You want the lowest loan payment possible
- Plan to sell or refinance the home over the next several years
- Expect your house to appreciate rapidly
- Limited Documentation Loans
- These loans are designed for people with excellent credit who want to streamline the process by supplying minimal documentation. These loans typically carry a high interest rate.
- Who should Consider a Limited Documentation Loan?
- You have excellent credit
- You want a significantly reduced processing time
- You have income that is hard to document using conventional methods such as pay stubs and W2s
- Jumbo Loans
- These loans are for borrowers who are looking for loans in excess of $417,000. These loans typically carry a higher interest rate than amounts less than or equal to $417,000 which is the maximum amount established by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Loan amounts in excess of $417,000 are often referred to as "Jumbo" or Non-conforming loans.
- Who should consider a Jumbo Loan?
- Your loan amount will be greater than $417,000
- You are comfortable with an interest rate a little higher than conforming loans
- You have very good to excellent credit
- You have 10% or more for a down payment
|
 |
|
 |
|
|
