Loan Products

Fixed Rate Mortgages

The traditional fixed rate mortgage is the most common type of loan programs, where monthly principal and interest payments never change during the life of the loan. Fixed rate mortgages are available in terms ranging from 10 to 30 years and can be paid off at any time without penalty. This type of mortgage is structured, or "amortized" so that it will be completely paid off by the end of the loan term. There are also "bi-weekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.)

Even though you have a fixed rate mortgage, your monthly payment may vary if you have an "impound account". In addition to the monthly loan payment, some lenders collect additional money each month (from folks who put less than 20% cash down when purchasing their home) for the prorated monthly cost of property taxes and homeowners insurance. The extra money is put in an impound account by the lender who uses it to pay the borrowers' property taxes and homeowners insurance premium when they are due. If either the property tax or the insurance happens to change, the borrower's monthly payment will be adjusted accordingly. However, the overall payments in a fixed rate mortgage are very stable and predictable.

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Adjustable Rate Mortgages (ARM)

Adjustable Rate Mortgages (ARM)'s are loans whose interest rate can vary during the loan's term. These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions. The initial rate on an ARM is lower than on a fixed rate mortgage which allows you to afford and hence purchase a more expensive home. Adjustable rate mortgages are usually amortized over a period of 30 years with the initial rate being fixed for anywhere from 1 month to 10 years. All ARM loans have a "margin" plus an "index." Margins on loans range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value. The index is the financial instrument that the ARM loan is tied to such as: 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI).

When the time comes for the ARM to adjust, the margin will be added to the index and typically rounded to the nearest 1/8 of one percent to arrive at the new interest rate. That rate will then be fixed for the next adjustment period. This adjustment can occur every year, but there are factors limiting how much the rates can adjust. These factors are called "caps". Suppose you had a "3/1 ARM" with an initial cap of 2%, a lifetime cap of 6%, and initial interest rate of 6.25%. The highest rate you could have in the fourth year would be 8.25%, and the highest rate you could have during the life of the loan would be 12.25%.

Some ARM loans have a conversion feature that would allow you to convert the loan from an adjustable rate to a fixed rate. There is a minimal charge to convert; however, the conversion rate is usually slightly higher than the market rate that the lender could provide you at that time by refinancing.

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Hybrid ARM's (3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM)

Hybrid ARM mortgages, also called fixed-period Arm’s, combine features of both fixed-rate and adjustable-rate mortgages. A hybrid loan starts out with an interest rate that is fixed for a period of years (usually 3, 5, 7 or 10). Then, the loan converts to an ARM for a set number of years. An example would be a 30-year hybrid with a fixed rate for seven years and an adjustable rate for 23 years.

The beauty of a fixed-period ARM is that the initial interest rate for the fixed period of the loan is lower than the rate would be on a mortgage that's fixed for 30 years, sometimes significantly. Hence you can enjoy a lower rate while have some period of stability for your payments. A typical one-year ARM on the other hand, goes to a new rate every year, starting 12 months after the loan is taken out. So while the starting rate on Arm’s is considerably lower than on a standard mortgage, they carry the risk of future hikes.

Homeowners can get a hybrid and hope to refinance as the initial term expires. These types of loans are best for people who do not intend to live long in their homes. By getting a lower rate and lower monthly payments than with a 30- or 15-year loan, they can break even more quickly on refinancing costs such as title insurance and the appraisal fee. Since the monthly payment will be lower, borrowers can make extra payments and pay off the loan early; saving thousands during the years they have the loan.

Components of Adjustable Rate Mortgages

To understand an ARM, you must have a working knowledge of its components. Those components are:

Index: A financial indicator that rises and falls based primarily on economic fluctuations. It is usually an indicator and is therefore the basis of all future interest adjustments on the loan. Mortgage lenders currently use a variety of indexes.

Margin: A lender's loan cost plus profit. The margin is added to the index to determine the interest rate because the index is the cost of funds and the margin in the lender's cost of doing business plus profit.

Initial Interest: The rate during the initial period of the loan, which is sometimes lower than the note rate. This initial interest may be a teaser rate, an unusually low rate to entice buyers and allow them to more readily qualify for the loan.

Note Rate: The actual interest rate charged for a particular loan program.

Adjustment Period: The interval at which the interest is scheduled to change during the life of the loan (e.g. annually).

Interest Rate Caps: Limit placed on the up-and-down movement of the interest rate, specified per period adjustment and lifetime adjustment (e.g. a cap of 2 and 6 means 2% interest increase maximum per adjustment with a 6% interest increase maximum over the life of the loan).

Negative Amortization: Occurs when a payment is insufficient to cover the interest on a loan. The shortfall amount is added back onto the principal balance.

Convertibility: The option to change from an ARM to a fixed-rate loan. A conversion fee may be charged.

Carryover: Interest rate increases in excess of the amount allowed by the caps that can be applied at later interest rate adjustments (a component that most new Arm’s are deleting).

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JUMBO

A jumbo loan is a non-conventional loan that major agencies, such as FHLMC and FNMA, won't buy and trade because of the loan's cost. When a lender offers a mortgage loan, they usually do not keep the mortgage loan for the duration of the time it takes you to pay the loan back. Instead, they sell the loan on the secondary market to agencies such as FHLMC and FNMA.

These two major institutions are very powerful in the mortgage market, and most lenders want to be able to sell mortgage obligations to them in order to free up cash or to obtain liquidity to do more business. Because a jumbo loan fails to qualify for Fannie Mae and Freddie Mac guidelines, borrowers must often pay extra to help lenders countenance the extra risk they encounter for financing it.

Jumbo loans were designed to help high-income individuals afford luxury homes or smaller homes in highly desirable areas. However, when home prices rise and houses become more expensive, more and more middle-income Americans have had to turn to jumbo loan financing to buy their dream homes.

As of 2009, in most areas of the country, loans above $417,000 are considered jumbo loans. However, if you live in certain regions in the country, you may be able to qualify for a conventional loan even if the cost of your mortgage exceeds this cap. In Guam, the US Virgin Islands, Alaska, and Hawaii, for example, borrowers may borrow up to 150 percent of the standard mortgage cap before their loan is considered a jumbo loan.

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FHA

FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA).  FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn't issue loans or set interest rates, it just guarantees against default.

FHA loans allow individuals whom might not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.

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Interest Only

A mortgage is called “Interest-Only” when its monthly payment does not include the repayment of principal for a certain period of time. Interest Only loans are offered on fixed rate or adjustable rate mortgages as wells as on option ARM’s. At the end of the interest only period, the loan becomes fully amortized, thus resulting in greatly increased monthly payments. The new payment will be larger than it would have been if it had been fully amortizing from the beginning. The longer the interest only period, the larger the new payment will be when the interest only period ends.

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.

As an example, if you borrow $250,000 at 6 percent, using a 30-year fixed-rate mortgage, your monthly payment would be $1,499. On the other hand, if you borrowed $250,000 at 6 percent, using a 30-year mortgage with a 5-year interest only payment plan, your monthly payment initially would be $1,250. This saves you $249 per month or $2,987 a year. However, when you reach year six, your monthly payments will jump to $1,611, or $361 more per month. Hopefully, your income will have jumped accordingly to support the higher payments or you have refinanced your loan by that time.

Mortgages with interest only payment options may save you money in the short-run, but they actually cost more over the 30-year term of the loan. However, most borrowers repay their mortgages well before the end of the full 30-year loan term.

Borrowers with sporadic incomes can benefit from interest-only mortgages. This is particularly the case if the mortgage is one that permits the borrower to pay more than interest-only. In this case, the borrower can pay interest-only during lean times and use bonuses or income spurts to pay down the principal.

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VA Home Loans

The VA Loan provides veterans with a federally guaranteed home loan which requires no down payment. This program was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans.

The Veterans Administration provides insurance to lenders in the case that you may default on a loan. Because the mortgage is guaranteed, lenders will offer a low interest and terms than a conventional home loan. VA home loans are available in all 50 states. The major advantage to a VA home loan is that there is no down payment required to purchase a home.

A VA loan may also have reduced closing costs and no prepayment penalties. Additionally there are services that may be offered to veterans in danger of defaulting on their loans. VA home loans are available to military personal that have either served 181 days during peacetime, 90 days during war, or a spouse of serviceman either killed or missing in action.

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Fannie Mae Refinance Plus

Fannie Mae Refinance Plus

Fannie Mae Refi Plus (also known as Fannie Mae Refinance Plus and FNMA Refi Plus) is the HARP or Home Affordable Refinance Program offered through Fannie Mae, or the Federal National Mortgage Association.

Purpose of the Fannie Mae Refinance Plus Program
The FNMA Refi Plus program was created as a way to help stimulate the housing economy by making it easier for lenders to refinance loans already in their portfolio. One way the Fannie Mae Refi Plus Program does this is by allowing homeowners to refinance, even if the value of their home now is less than the amount they still owe on their existing mortgage. Through the program, lenders with Fannie Mae backed mortgages will now be allowed to consider making refinance loans for homes with a loan to value ratio (LTV) of up to 125%. That means the home could be a full 1/4 less valuable than the amount owed on the loan and still be eligible for a FNMA Refi Plus loan.

Benefits of the Fannie Mae Refinance Plus Program
Besides the first benefits already stated above, the ability to refinance a mortgage higher than the current value of the home, there are a couple of other key benefits to FNMA Refi Plus as well. A Fannie Mae Refi Plus loan may have a lower monthly interest and principal payment than their existing mortgage and/or it may get a homeowner out of a riskier (i.e. subprime) mortgage in favor of a more stable, fixed rate refinance mortgage. All Fannie Mae Refi Plus rates are fixed rates.

Other benefits are that applicants do not need perfect credit, and may not even need a home appraisal done to qualify (with a PIW or Property Inspection Waiver). The lenders who make Fannie Mae Refi Plus loans also benefit from the transaction by reducing their risk of default on the loan.

Qualifying For The Fannie Mae Refinance Plus Program
The biggest (or at least first) qualification for the Fannie Mae Refi Plus Program is that your existing mortgage already be in the Fannie Mae portfolio.

As part of the secondary mortgage market, Fannie Mae buys up existing loans in the primary mortgage market. Fannie Mae then becomes your new de facto lender. That means it is possible you could be eligible to get a Fannie Mae Refi Plus loan even if your existing mortgage loan wasn’t originally made with Fannie Mae. If Fannie Mae purchased your mortgage from your lender, then you may qualify for the Fannie Mae Refinance Plus Program. The Fannie Mae website has a free online look-up tool you can use to determine whether or not Fannie Mae does currently hold your loan or not.

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Freddie Mac Relief Refinance - Open Access

The Freddie Mac Relief Refinance Mortgage – Open Access (Freddie Mac to Freddie Mac refinance) supports the federal Making Home Affordable Program by helping borrowers who are making timely mortgage payments but have been unable to refinance due to declining property values. With this offering, borrowers can now refinance, even if we’re not currently servicing the mortgage.

Although the program allows up to 125% loan to value, (similar to Fannie Mae’s Refi Plus), lenders are capping this program at 105% loan to value (as of 3/30/2010).

The mortgage being refinanced must:

--Be a first-lien, conventional mortgage currently owned or securitized by Freddie Mac.
--Have a Freddie Mac settlement date on or before May 31, 2009.
--Be seasoned for at least three months.

Freddie Mac Open Access additional information:

The program is limited to Rate and Term refinances and the proceeds may be used only to:

Pay off the first Mortgage (amount including only the unpaid principal balance and interest accrued through the date the Mortgage being refinanced is paid off). (The result may be rounded up to the nearest thousand.)

Pay the lesser of 4% of the current unpaid principal balance (UPB) of the Mortgage being refinanced or $5,000 in related Closing Costs, Financing Costs and Pre-paids/Escrows

Funds available as a result of the rounding must be applied as a principal curtailment to the new refinance mortgage and/or disbursed as cash to the borrower not to exceed $250.00

Must demonstrate that Relief Refinance Mortgage – Open Access improves borrower’s position as follows:

Reducing interest rate

Reducing amortization period

Replacing ARM, IO or Balloon Product with a fully amortizing Fixed Rate Product

Properties that have been listed for sale are eligible with the following restrictions:

Property has been taken off the market on or before the application date.

Borrower must sign an affidavit confirming occupancy, and that the home was not listed at time of application and is not listed at the time of funding.

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Mortgage Calculator

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Frequently Asked Questions

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