Real Estate Loans
There are several different types of home loan programs available to the borrower today, and they break down into two basic categories — fixed rate and adjustable rate.
Fixed Rate Loans
30 – Year Fixed
A fixed rate loan has a set interest rate and monthly mortgage payment that is maintained for the life of the loan. The 30 year loan is the most popular be best if you intended to stay in your home for that length of time or more, or are conservative and did not want to take a risk that the mortgage payment will increase in the future.
15 – Year Fixed
A 15 – year fixed rate loan is set up the same as the 30 – year where the payment is the same over the term of the loan, but the amortization period is calculated over 15 years, so the payments are higher but the portion of principal to interest is different so that the loan is paid off in 15 years. The interest rate is also lower and you end up paying less interest over the life of the loan as well.
Move into your forever home with a jumbo loan. Need a loan that exceeds the current conforming limit? A fixed or adjustable jumbo mortgage can help you make your move. This type of home loan will allow you to buy a lot of real estate but can also requires more stringent credit guidelines and a larger down payment.
Make your home ownership dreams come true with an FHA loan. Featuring flexible credit restrictions and down payment options as low as 3.5%, an FHA loan is a popular type of loan for first-time home buyers.
VA home loan
Enjoy exclusive military benefits with a VA loan. If you are a veteran or an active-duty service member, a VA loan offers less restrictive credit guidelines and low down payment options for you and your family.
Interest Only Mortgage
Free up your cash flow with an interest only mortgage. Take advantage of the low monthly payments right off the bat to afford a more expensive home and invest your income elsewhere.
A balloon mortgage is a variation on the fixed rate loan. It provides for a lower initial interest rate for the first 5 – 10 years of the loan, based on an amortization of 30 years. After the initial period the loan actually becomes due or can be renewed at the current fixed rate of the market at that time. The interest rate of the initial period is typically ¼ to ½ % lower, there is generally a small fee of approximately $250 to convert the loan, and when renewed with the current lender there is generally an additional small percentage added to the fixed rate (perhaps ½ %). This program would be beneficial for someone who perhaps plans to move in the next 5 – 7 years and who wants a lower initial payment.
Adjustable Rate Loans
An adjustable rate mortgage (ARM) is a loan whose interest rate adjusts either up or down depending on current market conditions. The advantage of an ARM is that the initial interest rate is generally significantly lower than that of a fixed rate. The disadvantage is that you will not know whether or not your payments will remain the same or adjust upwards year to year. ARM loans are typically named for their adjustment interval.
For example, a 3/1 ARM is fixed for the first 3 years and then becomes a one-year ARM for the remainder of the 30-year term. A 3/3 ARM adjusts every 3 years throughout the entire 30 year term. These loans are advantageous to homeowners who expect their incomes to increase from year to year and are not hesitant about fluctuating payments, or who do not expect to be in the home for a long period. ARMS are also generally assumable to new purchasers (subject to approval) whereby fixed rate loans are not.
There are several factors that affect this type of mortgage and the rate changes:
- Index – the financial instrument used as the foundation for determining future rates as adjustments are made. There are several indexes used by the mortgage industry — Treasury Bill, 11th District Cost of Funds (COFI), the LIBOR or Prime rate.
- Margin – the predetermined amount the lender adds to the index to arrive at the adjusted rate. The index is basically the cost to the lender, and the margin is considered the “profit” or yield for the investment.
- Caps – the cap is the maximum amount the ARM is allowed to adjust in each interval and over the life of the loan. The caps can apply to the interest rate or the payment.