NEWS
Loan Programs
Fixed Rate Mortgages
The most common type of mortgage program where your monthly payments for interest and
principal never change.
Adjustable Rate Mortgages (ARM)
These loans begin with an interest rate that is lower than a comparable fixed rate mortgage,
but the rate changes as specified intervals
Standard ARMS and the Differences
Choosing an ARM with an index that reacts quickly, lets you take full advantage of falling
interest rates.
Introductory Rate ARM’s
Most ARM’s have a low introductory rate, which is good anywhere from 1 month to as long as 10
years.
Reverse Mortgages
A special type of loan made to older homeowners to enable them to convert the equity in their
home to cash, to finance other needs.
London Inter Bank Offered Rate (LIBOR)
LIBOR is the rate on dollar-denominated deposits, also known as Eurodolllars, traded between
banks in London.
Balloon Mortgages
Short term mortgages that have some features of a fixed rate mortgage.
Interest Rate Buydowns
The buyer would pay points above current market points in order to pay a below market
interest rate during the first two years of the loan. At the end of the two years, they would
then pay the old market rate for the remaining term.
Cost of Funds Index (COFI)
The ratio of the dollar amount paid interest in interest during the month to the average dollar
amount of the funds for that constitutes the weighted average cost of funds ratio for that
month.
Graduated Payment Mortgage (GPM)
With a GPM, the payments are usually fixed for one year at the time.
1652 West Texas Street #248 1/2 phone (707) 864-3368
Fairfield, CA 94533 fax (707) 863-0832
NEWS
Choosing the Best Program
The right type of mortgage for you depends on different factors
The most common type of mortgage program where your monthly payments for interest and
principal never change. Property taxes and homeowners insurance may increase, but generally
your monthly payments will be very stable.
Fixed rate mortgage are available for 30 years, 20 years, 15 years and even 10 years. There are
also “bi-weekly mortgage”, which shorten the loan by calling half the monthly payment two
weeks. (Since there are 52 weeks in a year, you make 26 payments or 13 “months” worth, every
year.)
Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains
fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and
are structured to repay the loan at the end of the loan term. The most common fixed rate loans
are 15 years and 30 years mortgages.
During the early amortization period, a large percentage of the monthly payment is used for
paying the interest. As the loan is paid down, more of the monthly payment is applied to
principal. A typical 30 year fixed rate mortgage takes 22.5 years of level payments to pay half
of the original loan amount.
There isn’t a single or simple answer to this question. The right type of mortgage for you
depends on many different factors:
• Your current financial picture.
• How you expect your finances to change.
• How long you intend to keep your house.
• How comfortable you are with your mortgage payment changing.
For example, a 15 years fixed-rate mortgage can save you many thousand of dollars in interest
payments over the life of the loan, but your monthly payments will be higher. An adjustable
rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage –
but your payments could get higher when the interest rate changes.
The best way to find the “right” answer is to discus for finances, your plans and financial
prospects, and your preferences frankly with a mortgage professional. Give me a call.
1652 West Texas Street #248 2/2 phone (707) 864-3368
Fairfield, CA 94533 fax (707) 863-0832