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Loan
Types
30 Year Fixed Rate
Program - A 30 year fixed mortgage is a type
of mortgage loan that is repaid by the borrower making 360 equal
monthly payments over a period of 30 years. Since the borrower's
payments are 'fixed', the borrower can expect to make the same monthly
payment for the entire term of the loan. A 30 year mortgage loan is
the most widely accepted program used to finance a residential
purchase, and is available for conventional, jumbo, FHA and VA loans.
15 Year Fixed Rate Program - A 15 year fixed mortgage is a type
of mortgage loan that is repaid by the borrower making 180 equal
monthly payments over a period of 15 years. Since the borrower's
payments are 'fixed', the borrower can expect to make the same monthly
payment for the entire term of the loan. A 15 year mortgage loan is
the most widely accepted program used to finance a residential
purchase, and is available for conventional, jumbo, FHA and VA
loans.
1, 3, 5, 7, 10 Year Adjustable Rate Program
- An Adjustable Rate Mortgage (ARM) is a mortgage loan that is most
widely known for its low starting interest rate (when compared to the
30 & 15 year mortgage loans). This 'low' introductory rate is used to
calculate the mortgage payment for a specified period of time. Once
this introductory period is over, the interest rate is adjusted
periodically based on a pre-selected index. The most commonly used
index is the yield on the one-year Treasury Bill. The new interest
rate is determined by adding this index to a set margin (which is
determined by the lender). Although there are a variety of adjustable
rate mortgage programs available, the most common program is the One
Year Adjustable Mortgage (one Year ARM), which is available for
conventional, jumbo, FHA and VA loans. The interest rate on the one
year ARM is adjusted once each Year, for 30 years. APR's on variable
rate loans are subject to increase but may decrease from year-to-year,
the borrower should be prepared to handle an increase in his/her
monthly payment (should the index rate increase).
15, 30 Year Jumbo Programs
- A jumbo mortgage is a mortgage loan which is larger than the limits
set by Fannie Mae and Freddie Mac ($240,000 as of 1/1/99). Since these
two agencies will not purchase these types of loans, they usually
carry a higher interest rate (to enhance their value and
marketability to investors).
15, 30 Year FHA Programs - An
FHA mortgage loan is insured by the Federal Housing Administration (a
division of the Department of Housing and Urban Development (HUD)).
Although mortgage lenders provide the mortgage funds, the FHA sets
underwriting standards for approving applicants. In many cases, FHA
underwriting guidelines are more lenient than conventional (not
government insured or guaranteed) underwriting guidelines. This
leniency makes it easier for borrowers to qualify for a mortgage loan
(low down payment requirements and a higher monthly debt allowance).
FHA limits the types of loan programs it insures, but it will insure
the more popular 30 year fixed, 15 year fixed and one year adjustable
loan programs. However, borrowers are limited to the amount that they
can borrow using an FHA-insured mortgage. Applicable loan limits
differ by county, so contact your local HUD office for specifics.
15, 30 year VA (Dept. of Veterans Affairs) -
A VA mortgage loan is a mortgage loan that is guaranteed
by the Department of Veterans Affairs (DVA). One of the biggest
advantages of using a VA loan is that the borrower can finance the
purchase of a property with no-money down. However, VA loans are
restricted to individuals qualified by military service. The DVA will
guarantee the more popular 30 year fixed, 15 year fixed and one year
adjustable loan programs.
5/25, 7/23 Balloon Programs - A balloon
mortgage loan is a type of mortgage loan that has a short term
(typically 5 or 7 years), but the monthly payment is computed using a
30 year term. When a borrower uses a balloon loan, he/she will make
the monthly payment for the scheduled loan term (5 or 7 years). When
this loan term is over, the borrower is required to pay off the
remaining balance in one lump-sum payment. If the borrower decides not
to sell the property after the loan term is over, the borrower has the
option to
refinance the mortgage with a new one. A 7/23 balloon mortgage
gives the borrower the option to convert to a fixed rate program (for
a nominal fee) after the initial term (7 years) is over. If the
conversion feature is used, the interest rate for the remaining term
of the loan (23 years) will be adjusted once to reflect market
conditions, then remain fixed for the remainder of the loan term. |
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