With
the number of programs available you need a Trusted Advisor. The days of "one
size fits all" are gone. We will spend as much time as you need listening
to you and designing a plan or set of plans that will maximize your financial
position as it relates to your home and your mortgage situation. Below are
some of the various programs and mortgage opportunities that are available
to you. As you can see, the question should not be "what loan do I want,"
but more importantly "what tools should we use to maximize my wealth and grow
my financial security."
Fixed Rate Mortgages | Adjustable
Rate Mortgages | Extendable or "Balloon" Mortgages
| HELOC’s | Interest Only
Products
In Addition there are multiple "DOCUMENTATION TYPES" that we can utilize in
order to custom fit a program to your goals, assets and financial position.
The Documentation types are….
Full Documentation | Stated
Income | No Ratio | No Documentation
Fixed
Rate Mortgages
This is the simplest and most universally recognized loan type. A fixed rate
mortgage is quite simply a mortgage loan contract with a guaranteed rate of
interest for a fixed period of time. It is generally offered in five-year
increments up to 30 years (in the past couple of years some lenders have offered
terms as long as 40 years). The single most popular loan term is the 30 year
fixed rate loan. The pros and cons are...
| Pros |
Cons |
| Security
of no rate changes |
You
will pay a premium of between __ and 2% in rate |
Adjustable
Rate Mortgages (ARM’s)
An adjustable rate mortgage will have a period of time that the rate remains
fixed and then a period of time where the rate may change. You will often
here ARM’s notated as 1 yr ARM’s, 2 yr ARM’s, 3 yr ARM’s,
5 yr ARM’s, 7 or even 10 yr ARM’s. Here’s what it means...
ARMS work very well for many homebuyers! If you are interested in an ARM,
make sure you understand exactly how the program selected by you will work
over the life of the loan. Not all ARMS are created the same or operate in
the same way.
Just to give you an idea of how a “typical” ARM works… keep reading. The first number indicates the length of time that this mortgage program will offer a fixed rate. At the end of that period the rate is subject to change. The program will have "caps" that will limit the movement of the rate (up or down) after the initial fixed period. A 3/1 ARM with 2/5 caps indicates that the loan will have a fixed rate for the first 3 years and then will adjust annually after that. After the initial fixed rate period the interest rate can go up or down 2% at each annual adjustment period but never more than 5% during its lifetime. An ARM that begins with an initial fixed rate of 5% could never go beyond 10% and never any more than 2% during any adjustment period.
After the initial fixed period the rate can change. There are two integral pieces to determining the change amount. It’s actually very simple. Every ARM program has an Index and a margin.
The index will
be some predetermined financially tracked resource. For example "Prime
Rate" is a popular "INDEX." Also an acronym called "LIBOR"
which stands for the London Inter Bank Offered Rate. There are many indices
that may be used. Check your local business paper or periodical, or even the
web to find the exact Index you are seeking. One website you may want to visit
is www.mortgage-x.com.
The margin is simply a predetermined "add" to the index. Maybe you
have heard your local bank advertising Prime plus 1 or Prime plus
2. The “plus” number is the margin.
For standard mortgage programs the margin varies and could range anywhere
from 2 up to 6 or even 7.
Extendable
or "Balloon" Mortgages
The term Balloon
is a little misleading so the mortgage industry now uses a term called Extendable
Mortgages. These two words are interchangeable. An extendable loan acts very
much like an ARM loan - it has a fixed rate period. So a 5 yr Extendable or
a 7 yr Extendable have a rate that will not change for 5 or 7 years. At the
end of this predetermined period of time, you have some choices. You may…
Pay the loan off. This can be accomplished by physically eliminating this liability or by refinancing the existing mortgage into a new one.
Transfer to the present market rate for 30 yr fixed rates at that time (this is known as a conversion feature). There is a small one-time fee to roll this loan to a fixed rate for the remainder off the amortization period. The fee usually ranges between $250 and $500.
The extendable mortgage option does not have caps (like an ARM loan does) that pertain to any possible new rate. But the rate can change once and only once because from the conversion point forward this becomes a FIXED RATE LOAN.
HELOC’s
This is an acronym for
Home Equity Line of Credit. For many years mortgage bankers have utilized
HELOC’s primarily as 2nd mortgages that offer you a line of credit,
presenting you access to the equity in your home without the expense of another
mortgage loan. Well now the industry has begun offering HELOC’s as a
tool to purchase homes, refinance homes, or do whatever you may choose. It
is offered as a 1st mortgage loan instead of the typical 2nd loan. Understand
however, 1st mortgage, 2nd mortgage, 5th mortgage... these are only representing
the "place in line" of this particular mortgage instrument. That’s all
it is. Depending upon your financial situation, it is common to do HELOC’s
all the way up to 100% of the value of the home.
Interest
Only Products
This is not a freestanding loan. It is simply a way of structuring
any of the previous loan product options. Interest Only Products are available
on fixed rate mortgages, ARM loans, Extendable loans, and HELOC’s. This
is by far the single most important advancement that has been offered in the
recent past.
Interest Only loans work this way... You will be obligated to pay the accrued
interest each month – nothing more. You are allowed to pay any principle
amount you wish but are not obligated to do so. Many Interest Only programs
only offer the feature for a fixed period... 5 years, 7 years, 10 years, 15
years. At the end of the period you must then begin paying interest.
If you do elect to make principal payments during the interest only period,
many programs will automatically recalculate your payment to the existing
balance and not the starting balance. With sound financial planning,
you can realize tremendous asset accumulation during the interest only time
period.
Full
Documentation
This is a loan where we
use typical mortgage rules with regard to documenting Income, Employment,
and assets. This is the type of loan where you would provide paystubs, W2s,
bank statements, and possibly Tax returns. This documentation option is available
on every Program or Product we offer. It will provide you with the best rate
for any specific program type.
Stated
Income
This is just as
it sounds. You would "state" your income. Employment is verified but income
is not. Typically attractive to self employed borrowers that may not be able
to fully document all income. There are limitations on this loan so don’t
get carried away. The income you "state" must seem reasonable for the
job. The rate of interest on this scenario would increase slightly over a
"Full Doc" type.
No
Ratio
Your employment is verified through a call to your employer
(or CPA if self employed) but you do not indicate any income. If your pay
is automatically deposited into your bank account, a verification of deposit
can be ordered from your banking institution so that this will not be a problem.
No
Documentation
This is a loan where very
minimal documentation is done. Income is not verified. In many cases assets
are not verified. Quite often employment is not verified. As you may guess,
this loan will carry a higher interest rate.