Fixed Rate Mortgage

The term for a fixed rate mortgage can be 10, 15, 20, 25 or 30 years. Because the principal and interest payments do not change, a fixed rate mortgage is a good choice for clients with a low risk tolerance.

 

Adjustable Rate Mortgage

Adjustable Rate Mortgages (ARM) begin with a fixed rate for a specific period of time, typically three to ten years. After the fixed rate period, the interest rate on an ARM will change periodically based on a set margin above the 1 Year Treasury Bill Index or the London Interbank Offered Rate (LIBOR). There are yearly and lifetime caps.

What to consider:

• lower fixed interest rate for specific timeframe
• beneficial if selling property within time frame of fixed rate
• subject to the risk of higher interest rates
• clients often refinance prior the end of the fixed rate period

FHA Loan

The purpose of a Federal Housing Administration (FHA) loan is to assist lower income borrowers and first time borrowers in obtaining affordable loans. The FHA does this by insuring loans, made by approved lenders, against default. The FHA was created during the Great Depression by the National Housing act of 1934, and the agency's mission has remained largely unchanged. In 1965 the FHA became part of the Department of Housing and Urban Development (HUD). Since that time, HUD has been the federal agency responsible for issuing the rules that regulate FHA insured loans.

What to consider:

• lower down payment requirements than conventional loans
• lower fee limits on closing costs
• downpayment monies can be gifted
• lower credit score requirement
• home improvement include 203k
• up-front mortgage insurance premium (MIP) is required

Refinance

Refinancing is the process of obtaining a new loan to pay off an existing loan. If the interest rate of existing loan is .25% higher than the current available interest rate, refinancing a property can be a wise decision.

What to consider:

• no up-front closing costs
• no points
• no points and no closing costs mean the benefit of refinancing becomes immediate.
• reasons for refinancing include, needing cash for home improvements or tuition, ability to secure a lower term or lower interest rate, or paying off an ARM or second mortgage carrying a higher rate.

Home Equity | Line of Credit

Home Equity/Line of Credit loans are secondary liens against a property. These are commonly referred to as "second mortgages."

Two types:

1. Closed End Home Equity loan is a fixed rate, fixed term loan. What to consider:

• no-risk
• the principal and interest payments do not change.

2.Open Ended Home Equity loan is a line of credit where any amount of cash, up to the established amount of the loan can be withdrawn as needed.
What to consider:

• often used as a way to pay for tuition or on-going home improvement project.
• interest rate adjusts based on the prime index rate as published in financial newspapers and websites.
• monthly interest payments made on amount borrowed.