Understanding Different Types of Mortgages
If you decide to take the big leap and sign a mortgage, there are many options available to you. Let’s investigate some of these:
30-Year Fixed-Rate Mortgages
A 30-year fixed mortgage is repaid by the borrower making 360 equal monthly payments over a period of 30 years. Since your payments are fixed, you can expect to make the same monthly payment for the entire term of the loan, regardless of any changes in the housing market. This is a popular loan used to buy a private house and is available for conventional, jumbo, FHA and VA loans. You can also get a 15-year fixed rate mortgage, which is basically the same except your monthly payment is 25 percent to 50 percent more, and you pay it off in half the time. With a 15-year program, you’ll also be paying a lot less interest.
Adjustable Rate Mortgages
Adjustable Rate Mortgages (ARMs) are nice because of their low beginning interest rate. This low introductory rate is used to calculate the mortgage payment for a specified period of time. Once this introductory period is over, the interest rate is adjusted periodically based on a preselected index. So, with ARMs, you’re rolling the dice a little bit and betting that your rate won’t increase too much.
Be aware that there are caps on how high your rate can go, and this is negotiated at closing time. The most commonly used index is the yield on the one-year Treasury bill. The new interest rate is determined by adding this index to a set margin (which is determined by the lender). The most common program is the one-year Adjustable Rate Mortgage (one-year ARM). The interest rate on the one-year ARM is adjusted once each year, for 30 years, and so on for 3-, 5-, 7-, and 10-year ARMs.
Jumbo Mortgages
A jumbo mortgage is a mortgage loan that is larger than the limits set by Fannie Mae and Freddie Mac ($333,700 as of January 1, 2004, with a higher limit in some states). Since these two agencies will not purchase these types of loans on the secondary market, they usually carry a higher interest rate.
FHA Loan Programs
An FHA mortgage loan is insured by the Federal Housing Administration. Although mortgage lenders provide the mortgage funds, the FHA sets underwriting standards for approving applicants. In many cases, FHA underwriting guidelines are more lenient than conventional underwriting guidelines. This makes it easier for borrowers to qualify for a mortgage loan (low down payment requirements and a higher monthly debt allowance). Applicable loan limits differ by county, so contact your local HUD office for specifics.
VA Mortgages
A VA mortgage loan is a mortgage loan that is guaranteed by the Department of Veterans Affairs (DVA). One of the biggest advantages of using a VA loan is that the borrower can finance the purchase of a property with no money down. However, VA loans are restricted to individuals qualified by military service or occasionally to the public for resale in the event of foreclosure.
5/25, 7/23 Balloon Programs
A balloon mortgage loan is a type of mortgage loan that has a short term (typically five or seven years), but the monthly payment is computed using a 30-year term. When you use a balloon loan, you make a regular monthly payment for the scheduled term (five or seven years). When this loan term is over, you must pay off the remaining balance in one lump sum. If you are buying a house in the belief that the market will skyrocket in the next few years, and you’re planning to sell it, you could make a killing here!
If you decide not to sell the property after the loan term is over, you have the option to refinance the mortgage with a new one. With a 7/23 balloon mortgage you have the option to convert to a fixed rate (for a nominal fee) after the initial term is over. The interest rate for the remaining term of the loan (23 years) will be adjusted once to reflect market conditions, and then remain fixed for the remainder of the loan term.
Just like with the lease-option program, you’ll have to determine for yourself which mortgage program best fits your need. However, whichever program you choose, you should always keep an eye on accelerating your payments — this is one of your pieces of heavy artillery in the Cash Flow War.
anybody here know of a good site to find more info on 30 year fixed rate mortgages? I’ve got this site bookmarked and im gonna keep checking it out, but i still would like to find a site that covers 30 year fixed rate mortgages a little more thoroughly..thanks
your post explained further types of loans. sometimes i interchange one after the other
I am seaching for some idea to write in my blog… somehow come to your blog. best of luck. Eugene