Financing/Mortgage Information

Conventional Fixed Rate Mortgages

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.

Interest Only Mortgages

An "Interest Only" Mortgage loan is a very popular alternative to traditional fixed rates.  Gaining popularity at record speed these home loans allow the consumer to pay "interest only" during a defined period of time for the loan.  For example, one of the most common programs a is a 5 year interest only loan where the borrower has a fixed rate for five years and is only obligated to pay the interest owed every month.  This could mean hundreds of dollars in monthly cash flow savings, increased purchasing power (since you qualify on the interest only payment) and more.  These loans are not for everybody however if you are self disciplined, have a good understanding of the time frame you will be in your home and understand the potential risks then these products provide an extremely attractive option to many homeowners.

POPULAR INTEREST ONLY PROGRAMS

Libor loans are loans based on either a fixed or adjustable rate tied to the libor index. LIBOR is an abbreviation for "London Interbank Offered Rate," and is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. Choosing a LIBOR index based mortgage loan and paying "interest only" allows the homeowner a number of benefits over fixed rates (see right).  Some of the most common Libor mortgage loan programs available are:

One Month Libor Loan

The interest rate on this loan is the sum of the LIBOR index plus a margin rounded to the nearest one-eighth of one percentage point, (0.125%). The margin will not change throughout the term of the loan however the index value will be adjusted every month, which will cause your interest rate to be adjusted accordingly.

Six Month Libor Loan

The interest rate on this loan is the sum of the LIBOR index plus a margin rounded to the nearest one-eighth of one percentage point, (0.125%). The margin will not change throughout the term of the loan however the index value will be adjusted every six months, which will cause your interest rate to be adjusted accordingly.

One Year Libor Loan

The interest rate on this loan is the sum of the LIBOR index plus a margin rounded to the nearest one-eighth of one percentage point, (0.125%). The margin will not change throughout the term of the loan however the index value will be adjusted on an annual basis which will cause your interest rate to be adjusted accordingly.

3 Year Libor ARM

The interest rate is fixed for the first three years of the loan term and your only obligation are interest only payments.  during years 4 thru 30 the interest rate is adjusted every year to the sum of the LIBOR index plus a pre-defined margin rounded to the nearest one-eighth of one percentage point - (0.125%). The margin will not change throughout the term of the loan however after the initial period has passed (month 37) the unpaid balance is fully amortized over the remaining term and the borrower is now obligated to make principal and interest payments to the lender.

5 Year Libor ARM

The interest rate is fixed for the first five years of the loan term and your only obligation are interest only payments.  during years 6 thru 30 the interest rate is adjusted every year to the sum of the LIBOR index plus a pre-defined margin rounded to the nearest one-eighth of one percentage point - (0.125%). The margin will not change throughout the term of the loan however after the initial period has passed (month 61) the unpaid balance is fully amortized over the remaining term and the borrower is now obligated to make principal and interest payments to the lender.

7 Year Libor ARM

The interest rate is fixed for the first seven years of the loan term and your only obligation are interest only payments.  during years 8 thru 30 the interest rate is adjusted every year to the sum of the LIBOR index plus a pre-defined margin rounded to the nearest one-eighth of one percentage point - (0.125%). The margin will not change throughout the term of the loan however after the initial period has passed (month 85) the unpaid balance is fully amortized over the remaining term and the borrower is now obligated to make principal and interest payments to the lender.

10 Year Libor ARM

The interest rate is fixed for the first ten years of the loan term and your only obligation are interest only payments.  during years 11 thru 30 the interest rate is adjusted every year to the sum of the LIBOR index plus a pre-defined margin rounded to the nearest one-eighth of one percentage point - (0.125%). The margin will not change throughout the term of the loan however after the initial period has passed (month 121) the unpaid balance is fully amortized over the remaining term and the borrower is now obligated to make principal and interest payments to the lender.

30 Year Fixed Rates (10 Years Interest Only)

A fixed rate for 30 years where the first 10 years are interest only payments. After the initial period has passed (121st month) the unpaid balance is fully amortized over the remaining term of the loan however the interest does not change.  Most lenders allow the borrower to make voluntary principal payments during the interest only period.

30 Year Fixed Rates (15 Years Interest Only)

A fixed rate for 30 years where the first 15 years are interest only payments. After the initial period has passed (121st month) the unpaid balance is fully amortized over the remaining term of the loan however the interest does not change.  Most lenders allow the borrower to make voluntary principal payments during the interest only period.

Adjustable Rate Mortgages

1-Year Adjustable Rate Mortgage

This is a 30-year loan in which the rate (and therefore your monthly payment) changes every 12 months on the anniversary of your loan. The amount of the rate change (referred to as an Adjustment) is determined by a mathematical formula based on the U.S. bond market (typically the yield on the 1 Year U.S. Treasury Bill). Your lender does not control this number, so it is safe to assume that your adjustment will be fairly determined (although you should always verify your new rate by comparing with published numbers).

This loan is considered quite risky because your payment may change significantly from year to year. In exchange for taking this risk, the borrower is rewarded with an initial rate that is significantly below market rates for 30-Year Fixed Rate Mortgages. Even after the loan adjusts, your new rates will typically be below rates being offered to new borrowers for the 30-Year Fixed Rate program. In periods of rising interest rates, it is possible that you will ultimately pay much more for a 1-Year Adjustable than a 30-Year Fixed Rate Mortgage.

This loan may be right for you if you need to qualify for the largest loan possible using your current income and you are confident that your income will increase significantly in the short term to cover any anticipated increases in rates over the next few years. Although this loan comes with adjustment rate caps (usually 2% limit per adjustment and 6% over the lifetime of your loan), you should assume that your first adjustment typically results in an increase in your interest rate.

This loan may also be right for you if you can afford any increases in your interest rate and are willing to take a chance on changes in interest rate in exchange for a lower initial monthly payment and, hopefully, low payments in subsequent years.

3-Year Adjustable Rate Mortgage

This is a 30-year loan in which the rate (and therefore your monthly payment) changes every 3 years. Your new rate is calculated based on a predetermined formula. This loan, while risky, is safer than the 1-Year Adjustable Rate Mortgage only because it does not adjust as frequently. This loan is right for you if you are willing to take on a moderate amount of interest rate risk in exchange for a lower initial rate that cannot change for three years. This loan could be right for you if you expect to move or refinance in about three years. This loan may also be right for you if you wish to qualify for more money now based on your current income and you expect your income to increase over the next three years to cover any adjustment in your monthly payments.

Finally, this loan may be right for you if you plan to stay in your home longer than three years, and your income will be able to absorb any increases in your monthly payment.

5-Year Adjustable Rate Mortgage

This is a 30-year loan in which the rate (and therefore your monthly payment) changes every 5 years.

This loan is a nice compromise between shorter term Adjustable Rate Mortgages and Fixed Rate programs. You might choose this program if you expect to stay in your current home beyond the initial five years, you still wish to keep your payments relatively low, and you are willing to accept a small amount of interest rate risk in exchange for this benefit. This program may not be right for you if you are concerned that your income may not support increases in your monthly payment.

31 Adjustable Rate Mortgage 

This 30-year loan offers a fixed interest rate for the first 3 years and then turns into a 1 Year Adjustable Rate Mortgage for the remaining 27 years of the loan. This loan has recently become quite popular by those seeking to minimize monthly payments while accepting a certain amount of risk.

This loan may be right for you if you wish to maximize the amount of loan you qualify for and expect to remain in this home for more than 3 years. This loan is generally the least expensive way to fix your monthly payment for the first three years of your loan. After that, this loan is like a 1 Year ARM with all of its risks and rewards. This loan may not be right for you if you are concerned that your income in three years may not cover your monthly payment after your first adjustment.

5/1 Adjustable Rate Mortgage

This 30-year loan offers a fixed interest rate for the first 5 years and then turns into a 1 Year Adjustable Rate Mortgage for the remaining 25 years of the loan. This loan has a longer initial fixed period than the 3/1 Adjustable.

This loan may be for you if you fit the profile for the 3/1 Adjustable Mortgage but wish to trade off a higher initial rate for the security of a longer initial fixed period. If you are certain you will only remain in this home for less than the initial 5 years, consider the 5/25 Balloon Mortgage instead.

7/1 Adjustable Rate Mortgage

This 30-year loan offers a fixed interest rate for the first 7 years and then turns into a 1 Year Adjustable Rate Mortgage for the remaining 23 years of the loan.

This loan could be right for you if you plan to remain in this home at least the initial seven years but consider it likely that you may wish to remain longer. If you are certain you will only remain in this home for less than the initial seven years, consider the 7/23 Balloon Mortgage instead.

0/1 Adjustable Rate Mortgage

This 30-year loan offers a fixed interest rate for the first 10 years and then turns into a 1-Year Adjustable Rate Mortgage for the remaining 20 years of the loan.

This loan may be right for you if you plan to remain in this home at least the initial ten years, but consider it likely that you may wish to remain longer. Consider this loan if you wish to have a long period of fixed monthly payments, but still wish to enjoy some savings over the 30-Year Fixed Rate Mortgage.

2/28 Adjustable Rate Mortgage

This program is a 30-year adjustable program, except that the first adjustment does not occur until 2 years into the loan. At this point, adjustments are typically made every 6 months. Ask your lender about the frequency of adjustments, since some 2/28 loans adjust every year.

This program is primarily offered for consumers with less-than-perfect credit. The intention of this loan is to allow the borrower 2 years to improve his or her credit rating, at which point the borrower may refinance at a better rate.

3/27 Adjustable Rate Mortgage

This program is like the 2/28 Adjustable Rate Mortgage, except that the initial fixed period is 3 years instead of 2 years.

Balloon Mortgages

Two-Step Mortgages

Pre-qualification and pre-approval of mortgages

Although many people outside of the mortgage industry-and some within it-use the two terms interchangeably, "pre-qualification" and "pre-approval" are actually two different, although related, processes. Each has its own benefits, and using them both over the course of a home search can give you many advantages as a buyer. Make Pre-Qualification Your First Step
Going through pre-qualification for a loan can give you valuable information with which to begin preparing for a new mortgage.

Pre-qualification is an informal process, and can often take place over the phone or at a web site in just a few minutes. In it, a lender will ask you to provide information about your income, debt, and other financial matters. Based on the information you provide, the lender will give you an estimate of the dollar amount the company could lend you, and at what interest rates, if the information you have provided is accurate.

Because pre-qualification does not involve a credit check or the production of documents to support your financial history, the lender's estimate is only that-it does not guarantee you the loan in any way. But the fact that it involves no credit check also means that pre-qualifying should not add an inquiry (a notation that someone has checked your credit) to your credit report. This allows you to shop around and compare lenders without adding the multiple inquiries that lenders interpret negatively when deciding whether or not to offer you a loan and what kinds of terms to offer. (You should make sure that the lender will not run a credit check to pre-qualify you, and save that step for a lender you're very serious about.)

Pre-qualification also gives you an opportunity to discuss your credit profile with a lender and act on any suggestions he or she may have for improving it before anyone runs a credit check. Of course, it is also important that you check your own credit report for accuracy before applying for a loan. One of the easiest ways to do this is to sign up for one of the many free Credit Report Services available on the internet [do a Google search for “free credit report”].  

Seek Pre-Approval When You're Ready to Shop Seriously
After you've shopped around and used the information you gained by pre-qualifying for loans at several lenders to choose the best deal and get your finances in order, apply for pre-approval with the lender of your choice. Pre-approval is a more in-depth process than pre-qualification, and should result in a written document from the lender conditionally guaranteeing you a loan for a specified amount and specifying a maximum rate of interest.

Normal conditions might include requiring an appraisal on the home to verify it is not overpriced. A clause allowing the lender to decline to loan if your financial situation changes substantially between the time of your pre-approval and closing is also common. But pre-approval should not carry a lot of strings. If the lender requires a second review of your credit and finances, seek pre-approval elsewhere.

To get that conditional guarantee, you will for all intents and purposes apply for a loan. The lender will run a credit check on you, and also ask for other documents to prove your financial history and stability. These could include things like your past three bank statements, last few pay stubs, and perhaps copies of your income tax returns. This may sound like a hassle, especially if you haven't found a home to purchase yet, but going to the trouble of obtaining pre-approval can help you in several ways. For one thing, it may allow you to lock in a loan rate at current interest levels. More importantly, it lets both you and home sellers know exactly how much you can afford. With that information in hand, you can shop wisely, and a seller can consider your offer more seriously than she or he would an offer from someone without a guaranteed loan.

Because your loan is virtually assured, you have the power of a cash buyer. A seller may be willing to take a slightly lower price, confident that you will be able to close the deal quickly, or may find your offer more appealing than other bids that don't carry that guarantee.

Most lenders do charge a fee for pre-approval, but this should not be more than $50-and can be a lot less. And the benefits you gain as a homebuyer are well worth the cost and time. By using pre-qualification to obtain information, and then seeking pre-approval to obtain credibility as a serious buyer who is prepared to deal you can substantially smooth the way for your next home purchase.