Top 5 Loan Programs What are they and how do they work? Fixed Rate 30-Year Fixed Rate Mortgage This is the most popular and conventional loan program. Your monthly payment is calculated based on the initial interest rate and never changes for the 30-year life of the loan. The 30-Year Fixed Rate Mortgage is considered the most conservative because there is no risk that changing market conditions will affect your monthly payment. This loan is probably right for you if you don't plan to move or refinance for at least 10 years and you expect interest rates to increase over this period, or you just feel comfortable knowing that your payment won't change no matter what. This loan may also be right for you if you don't expect your income to increase significantly over the next several years. 20-Year Fixed Rate Mortgage Like the 30-Year Fixed Rate Mortgage, this program guarantees that your payment never changes over the life of your loan. Since you are committing to pay off your loan over a shorter period, however, your monthly payment will be significantly higher than for a 30-Year mortgage. This loan may be right for you if you are interested in paying off your loan more quickly. This loan may also be appropriate if you expect to stay in this home in your retirement and you will be retiring in fewer than 30 years and wish to start retirement without mortgage debt. 15-Year Fixed Rate Mortgage The most aggressive of the Fixed Rate Mortgage options, this loan is paid off in only 15 years, resulting in a much higher monthly payment. This program is for those who can afford the higher monthly payment and are willing to pay more over a shorter period of time with the goal of owning the home without debt as soon as possible. This loan could be for you if you are very aggressive about owning your home sooner or are close to retirement and wish to remain in your home and start retirement without mortgage debt. Fixed Rate loans are very loan risk. These loans work well for fixed income borrowers. Option ARM The Option ARM Program puts you in control of your home loan. This is how it works: Each month, you will receive an easy to read loan statement that lets you choose the payment amount that best suits your current financial needs. Pay the minimum amount to free up funds for other uses, or make larger payments for faster equity build up. Loan Features: A fixed interest rate for an initial 1-month period; thereafter the interest rate may change monthly A minimum payment amount that adjusts on an annual basis subject to a payment change cap A payment change cap limits how much the minimum monthly payment can increase or decrease from the previous minimum payment. A lifetime interest rate cap that protects you by limiting how high your interest rate can go Payment Option 1: Minimum Payment Due This option gives you more cash now and keeps your monthly payments manageable Payment changes annually and is calculated using the initial interest rate for the first 12 months The minimum monthly payment is usually recalculated annually thereafter; and is based on the outstanding principal balance, remaining loan term and prevailing interest rate Payment Change Cap limits how much this option payment can increase or decrease each year Payment Option 2: Interest Only Payment At those times when the minimum monthly payment is not sufficient to pay the monthly interest due, you can avoid deferred interest by paying the minimum monthly payment plus any additional interest accrued during the month. Payments remain manageable, with no change in your principal balance for that month Payment Option 3: 30-Year Full Principal and Interest Payment This is the fully amortized payment based on a 30-year loan. Calculated each month based on the prior month's interest rate, loan balance and remaining loan term Pays all of the interest due and reduces your principal, to pay off your loan on schedule Payment Option 4: 15-Year Full Principal and Interest Payment For faster equity build-up, quicker payoff and substantial interest savings, choose the largest monthly payment option. Calculated to amortize your loan based on a 15-year term from the first payment due date The Option ARM gives homeowners a freedom that many other loan programs cannot offer. This loan is great for a borrower with financial stability who is able to wisely budget their money as needed. Fixed Period A few options are available to fit your individual needs and your risk ARMs tolerance with the various market instruments. ARMs with different indexes are available for both purchases and refinances. Choosing an ARM with an index that reacts quickly lets you take full advantage of falling interest rates. An index that lags behind the market lets you take advantage of lower rates after market rates have started to adjust upward. The interest rate and monthly payment can change based on adjustments to the index rate. Types of Indices 6-Month Certificate of Deposit (CD) ARM This program has a maximum interest rate adjustment of 1% every six months. The 6-month Certificate of Deposit (CD) index is generally considered to react quickly to changes in the market. 1-Year Treasury Spot ARM This program has a maximum interest rate adjustment of 2% every 12 months. The 1-Year Treasury Spot index generally reacts more slowly than the CD index, but more quickly than the Treasury Average index. 6-Month Treasury Average ARM This program has a maximum interest rate adjustment of 1% every six months. The Treasury Average index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators. 12-Month Treasury Average ARM This program has a maximum interest rate adjustment of 2% every 12 months. The Treasury Average Index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators. Most ARMs have an initial fixed rate period (i.e. 3, 5, and 7 years). Once the initial fixed rate period is complete, the interest rate of your mortgage will then adjust according to the index upon which your loan was locked. These types of loans serve the best purpose to those clients that have one of the following goals in their transaction: building credit in order to obtain a lower/better rate in the future, planning to sell the home within the fixed period time, or a person who know they will be getting a large/significant raise in income within the fixed rate period but needs the lowest payment at the start of the loan to qualify. These mortgages will most likely be refinanced prior to the fixed period being up. Interest Only The mechanics of an interest-only mortgage loan are simple. For a set period (generally in the early years of a mortgage when most of the payment goes toward interest anyway), you pay only the interest portion of your monthly payment, freeing up for other purposes the amount that would normally go toward paying off the principle. At the end of the interest-only period, your loan reverts back to its original terms, with the monthly payments adjusted upward to reflect full amortization over the remaining years of the loan (for instance, following a five-year interest-only loan, a 30-year mortgage would now fully amortize over 25 years). You won't build equity during the interest-only term, but it could help you close on the home you want instead of settling for the home you can afford. Since you'll be qualified based on the interest-only payment and will likely refinance before the interest-only term expires anyway, it could be a way to effectively lease your dream home now and invest the principal portion of your payment elsewhere while realizing the tax advantages and appreciation that accompany homeownership. Interest Only loans give borrowers the ability to free up additional cash NOW. These loans work great for a person planning to stay in a home loan term. HELOC HELOC stands for home equity line of credit, or simply "home equity line." It is a loan set up as a line of credit for some maximum draw, rather than for a fixed dollar amount. For example, using a standard mortgage you might borrow $150,000, which would be paid out in its entirety at closing. Using a HELOC instead, you receive the lender’s promise to advance you up to $150,000, in an amount and at a time of your choosing. You can draw on the line by writing a check, using a special credit card, or in other ways. Because the balance of a HELOC may change from day to day, depending on draws and repayments, interest on a HELOC is calculated daily rather than monthly. For example, on a standard 6% mortgage, interest for the month is .06 divided by 12 or .005, multiplied by the loan balance at the end of the preceding month. If the balance is $100,000, the interest payment is $500. On a 6% HELOC, interest for a day is.06 divided by 365 or .000164, which is multiplied by the average daily balance during the month. If this is $100,000, the daily interest is $16.44, and over a 30-day month interest amounts to $493.15; over a 31 day month, it is $509.59. HELOCs have a draw period, during which the borrower can use the line, and a repayment period during which it must be repaid. Draw periods are usually 5 to 10 years, during which the borrower is only required to pay interest. Repayment periods are usually 10 to 20 years, during which the borrower must make payments to principal equal to the balance at the end of the draw period divided by the number of months in the repayment period. Some HELOCs, however, require that the entire balance be repaid at the end of the draw period, so the borrower must refinance at that point. HELOC rates are tied to the prime rate, which some argue is more stable than the indexes used by standard ARMs. HELOCs have no adjustment caps, and the maximum rate is 18% except in North Carolina, where it is 16%. Don’t compare the APR on a HELOC with the APR on a standard loan because they mean different things. The APR on a HELOC is the interest rate, period. Among other things, it does not reflect points or other upfront costs, as the APR on standard loans does. HELOCs are convenient for funding intermittent needs, such as paying off credit cards, making home improvements, or paying college tuition. You draw and pay interest on only what you need.
Pages to are hidden for
"Interest Only Fixed Rate Loans"Please download to view full document