FINANCIAL
PROGRAMS
1.
FIXED RATE MORTGAGES
2. ADJUSTABLE RATE
MORTGAGES (ARMS)
3. INTEREST ONLY
4. NEGATIVE AMORTIZATION
PRODUCTS
5. 80/10/10
6. CONSTRUCTION/REHAB
LOAN
7. BRIDGE LOAN
8. EQUITY LINES
9. CREDIT CHALLENGED/SUBPRIME
10. LOW OR NO DOWN
PAYMENT
Mortagage Terms
I.
FIXED RATE MORTGAGES
Fixed-rate
mortgages, the most popular type of mortgage, offer the peace
of mind that your interest rate will remain the same for as long
as you have your loan. If you expect to live in your home for
many years, having the same interest rate may be your key concern.
If you decide that you like the stable, predictable payments of
a fixed-rate loan, you have the option of choosing from a variety
of repayment terms: 15, 20, and 30 years are the most common.
Typically, the longer the term of the mortgage, the more interest
you pay over the life of your loan. However, stretching out your
repayment term means your monthly mortgage payments will be less
than they would be with a comparable shorter-term mortgage. Fannie
Mae-approved lenders offer a wide array of fixed-rate mortgages.
•
30-YEAR FIXED-RATE MORTGAGE
The most popular type of mortgage, the 30-year fixed-rate loan,
is most appealing to borrowers who want to stay in their homes
for a long period of time and who want to enjoy consistent payments
during this period. Other benefits include keeping housing expenses
to a minimum while maximizing mortgage interest deductions for
income tax purposes.
•
20-YEAR FIXED-RATE MORTGAGE
With a 20-year fixed-rate mortgage, you build up equity in your
home more quickly and save quite a bit of interest over the life
of your loan. As with all fixed-rate mortgages, the interest on
your loan never changes, bringing you peace of mind that your
principal and interest payments will remain level over time. However,
higher monthly mortgage payments may make it more difficult to
qualify for compared to the 30-year fixed-rate mortgage.
•
15-YEAR FIXED-RATE MORTGAGE
You pay off a 15-year fixed-rate mortgage in half the time you
pay off the traditional 15-year fixed-rate mortgage. This shorter
term makes it possible for you to build up equity in your home
faster, which can let you move up more quickly to a more expensive
home or save more in preparation for retirement or a child's education.
This loan is particularly attractive if you're refinancing your
mortgage because you shorten your loan term plus enjoy a lower
interest rate - 15-year mortgages are usually offered at interest
rates lower than those available with 30-year mortgages. However,
higher monthly payments may make it more difficult to qualify
for compared to the 30-year fixed-rate mortgage.
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II.
ADJUSTABLE RATE MORTGAGES (ARMS)
These
products start out with a lower interest rate, then the interest
rate adjusts periodically. If you're confident that your income
will increase steadily over the years, or if you plan to move
in a few years and aren't concerned about potential rate increases,
you may want to consider a Fannie Mae adjustable-rate mortgage.
With an ARM, your interest rate may move up or down as market
conditions change. Interest rate changes typically are subject
to two caps, one for each adjustment period and one for the life
of your loan.
Fixed-Period
Adjustable-Rate Mortgages is a type of adjustable-rate mortgage
(ARM) that maintains the same initial interest rate for a period
of time such as: the first three, five, seven, or ten years of
your loan, depending on the term you choose. Your interest rate
then adjusts annually, and can move up or down as market conditions
change.
All ARMS are tied into an index, the most common are the t-bill,
the Libor and the COSI and less common are the COFI AND CODI.
With ARMs, the interest rate adjusts periodically according to
a predetermined index and a fixed margin. This adjustment results
in the mortgage payment either increasing or decreasing. ARMs
typically offer a lower initial interest rate than fixed-rate
mortgages. Some ARMs offer fixed-rate periods for one, three,
five, seven or even 10 years before the interest rate starts adjusting.
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III.
INTEREST ONLY
If
you're looking to leverage your mortgage to expand purchasing
power, this mortgage offers the benefit of a low, fixed-rate monthly
payment.
"Interest
Only" Mortgage Loans are becoming one of the most popular
alternatives to traditional fixed rate mortgages. These loans
allow the borrower to pay ONLY the interest portion of the loan.
Paying only the interest could save you hundreds of dollars a
month enabling you to increase your purchasing power or add the
payment savings to your available cash flow. Since your payment
is substantially lower with an Interest Only loan, buyers can
qualify for a larger home without having to have a larger salary.
The
majority of lenders allow you to make principal payments anytime.
This gives you the flexibility to choose when to apply additional
payments to reduce the principal. Lenders that have prepayment
penalty's typically allow you to reduce the principal balance
by 20% in any 12 month period.
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IV.
NEGATIVE AMORTIZATION PRODUCTS
Negative
amortization is used to describe loans that have payment adjustment
caps instead of interest rate adjustment caps. Most loans are
designed to amortize, reduce, to a zero balance by the end of
their loan term. Therefore each payment contains a portion of
interest (primarily interest at the beginning) and a portion of
principal. These loans are referred to as "no negs"
or not having the possibility for negative amortization.
Negative
amortization loans calculate two interest rates. The first is
called the payment rate the second is the actual interest rate.
The payment rate is typically capped at 7.5% of the previous payment.
The true interest rate is calculated as simply the index plus
the margin without periodic caps. Borrowers are given a choice
of which rate to pay. Thus advertisers of negative amortization
loans often refer to these loans as "payment option"
loans. While it is true that the borrower has a payment option,
which offers flexibility, the borrower will also be subject to
the true interest rate.
Negative amortization loans can be useful if the borrower is primarily
concerned with cash flow rather than equity. If the borrower only
pays the payment rate, the overall mortgage payment over time
can be relatively low. This type of product can be a temporary
strategy if income is expected to be reduced for a period of time,
or if the hold period is short term to minimize cash outflow.
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V.
80/10/10
If
you do not have the standard 20% monies for a down payment then
most products force the clients into paying mortgage insurance
in order to obtain a loan. The 80/10/10 program offers you a product
that conforms to Fannie Mae guidelines. Your down payment is reduced
to 10% and the other 10% is in the form of an equity line. This
type of product satisfies the 20% down payment with NO MORTGAGE
INSURANCE attached.
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VI.
CONTRUCTION/REHAB LOAN
Saving
both time and money is a prime consideration when building your
new home. By offering the convenience of one lender, one application,
one set of fees and one closing, the Construction to Permanent
loan makes your new home financing easier and more affordable.
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VII.
BRIDGE LOAN
A
Bridge Loan is designed for homeowners planning to construct a
new owner-occupied primary residence. The Bridge Loan allows the
homeowner to access the equity in their current owner-occupied
residence, and use it as the down payment on a Construction-to-Permanent
Loan.
During
construction, there are no monthly mortgage payments on the Bridge
Loan. This lets you live in your existing home while you're building
your dream home. Your Bridge Loan is not due until your new home
is finished or you sell your existing home.
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VIII.
EQUITY LINES
You've worked hard to increase your home's equity,
so why not take advantage of it? In most cases there are no closing
costs involved. Rates for Equity Lines are usually tied into Prime.
The amount of money you can borrow is based on a number of factors,
such as the available equity in your home, your credit history
and the type of property you own. Use a Home Equity Loan for the
following:
• Debt consolidation
• Home purchase
• Emergencies
• Education
• Home improvement
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IX.
CREDIT CHALLENGED/SUBPRIME
Mortgage
offers a variety of programs to help you become a homeowner
even if you have less-than-perfect credit. If you have had
difficulty making timely payments, a new home may still
be within your reach.
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X.
LOW OR NO DOWN PAYMENT
These
programs make it possible for you to buy a home with little or
no down payment.
-
FHA (Federal Housing Administration) Mortgages
Generally offering lower down payments, an FHA mortgage is assumable
under certain conditions, so you may be able to offer it to
future buyers.
- VA
(Veterans Administration) Mortgages
These mortgages require no down payment and are available to
eligible military personnel, veterans and widows or widowers
of veterans.
-
No Down Payment Program
No-Down-Payment Program is a fixed-rate mortgage that offers
borrowers the flexibility of no down payment and the ability
to finance closing costs. This means you can finance up to 103%
of the lower of the sales price or the appraised value of the
property.
Adjustable
rate mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically
based on a preselected index.
Adjustment
interval
On an adjustable rate mortgage, the time between changes in the
interest rate and/or monthly payment, typically one, three or
five years, depending on the index.
Amortization
Means loan payment by equal periodic payment calculated to pay
off the debt at the end of a fixed period, including accrued interest
on the outstanding balance.
Annual
percentage rate A.P.R.
Is a interest rate reflecting the cost of a mortgage as a yearly
rate. This rate is likely to be higher than the stated note rate
or advertised rate on the mortgage, because it takes into account
point and other credit cost. the APR allows home buyers to compare
different types of mortgages based on the annual cost for each
loan.
Appraisal
An estimate of the value of property, made by a qualified professional
called an "appraiser".
Balloon
(payment) mortgage
Usually a short-term fixed-rate loan which involves small payments
for a certain period of time and one large payment for the remaining
amount of the principal at a time specified in the contract.
Blanket
Mortgage
A mortgage covering at least two pieces of real estate as security
for the same mortgage.
Cash
Flow
The amount of cash derived over a certain period of time from
an income-producing property. The cash flow should be large enough
to pay the expenses of the income producing property (mortgage
payment, maintenance, utilities, etc.)
Caps
(interest)
Consumer safeguards which limit the amount the interest rate on
an adjustable rate mortgage may change per year and/or the life
of the loan.
Closing
The meeting between the buyer, seller and lender or their agents
where the property and funds legally change hands. Also called
settlement. closing costs usually include an origination fee,
discount points, appraisal fee, title search and insurance, survey,
taxes, deed recording fee, credit report charge and other costs
assessed at settlement. The cost of closing usually are about
3 percent to 6 percent of the mortgage amount.
Commitment
Commitment an agreement, often in writing, between a lender and
a borrower to loan money at a future date subject to the completion
of paperwork or compliance with stated conditions.
Construction loan
A short term interim loan for financing the cost of construction.
The lender advances funds to the builder at periodic intervals
as the work progresses.
Credit
Report
A report documenting the credit history and current status of
a borrower's credit standing.
Debt-to-Income
Ratio
The ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long-term debts is divided by his
or her net effective income (FHA/VA loans) or gross monthly income
(conventional loans). See housing expenses-to-income ratio.
Equal
Credit Opportunity Act (ECOA)
Is a federal law that requires lenders and other creditors to
make credit equally available without discrimination based on
race, color, religion, national origin, age, sex, marital status
or receipt of income from public assistance programs.
Equity
The value an owner has in real estate over and above the obligation
against the property.
Escrow
Funds that are set aside and held in trust, usually for payment
of taxes and insurance on real property. Also earnest deposits
held pending loan closing.
Fixed-Rated Mortgage
A mortgage on which the interest rate is set for the term of the
loan.
Foreclosure
A legal procedure in which property securing debt is sold by the
lender to pay the defaulting borrower's debt.
Hazard Insurance
A form of insurance in which the insurance company protects the
insured from specified losses, such as fire, windstorm and the
like.
Housing
Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's
housing expenses are divided by his/her net effective income (FHA/VA
loans) or gross monthly income (conventional loans). See debt-to-income
ratio.
Index
A published interest rate against which lenders measure the difference
between the current interest rate on an adjustable rate mortgage
and that earned by other investments.
Investor
A money source for a lender.
Jumbo Loan
A loan which is larger than the limits set by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation.
Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the
appraised value of the property expressed as a percentage.
Margin
The amount a lender adds to the index on an adjustable rate mortgage
to establish the adjusted interest rate.
Market
Value
The highest price that a buyer would pay and the lowest price
a seller would accept on a property. Market value may be different
from the price a property could actually be sold for at a given
time.
Mortgage
Insurance
Money paid to insure the mortgage when the down payment is less
than 20 percent.
Negative
Amortization
Occurs when your monthly payments are not large enough to pay
all the interest due on the loan. This unpaid interest is added
to the unpaid balance of the loan. the danger of negative amortization
is that the home buyer ends up owing more than the original amount
of the loan.
Non
Assumption Clause
A statement in a mortgage contract forbidding the assumption of
the mortgage without the prior approval of the lender.
Origination
Fee
The fee charged by a lender to prepare loan documents, make credit
checks, inspect and sometimes appraise a property; usually computed
as a percentage of the face value of the loan. (points)
PITI
Principal, Interest, Taxes and Insurance. Also called monthly
housing expense.
Prepaid
Expenses
Necessary to create an escrow account or to adjust the seller's
existing escrow account. Can include taxes, hazard insurance,
private mortgage insurance and special assessments.
Prepayment
A privilege in a mortgage permitting the borrower to make payments
in advance of their due date.
Prepayment
Penalty
Money charged for an early repayment of debt. Prepayment penalties
are allowed in some form (but not necessarily imposed) in 36 states
and the District of Columbia.
Principal
The amount of debt, not counting interest, left on a loan.
Realtor®
A real estate broker or an associate holding active membership
in a local real estate board affiliated with the National Association
of Realtors.
Recision
The cancellation of a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel a contract
in some cases once it is signed if the transaction uses equity
in the home as security.
Recording
Fees
Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records.
Refinance
Obtaining a new mortgage loan on a property already owned. Often
to replace existing loans on the property.
Survey
A measurement of land, prepared by a registered land surveyor,
showing the location of the land with reference to know points,
its dimensions, and the location and dimensions of any buildings.
Title
A document that gives evidence of an individual's ownership of
property.
Title
Insurance
A policy, usually issued by a title insurance company, which insures
a home buyer against errors in the title search.
Title
Search
An examination of municipal records to determine the legal ownership
of property. Usually is performed by a title company.
Truth-In-Lending
A federal law requiring disclosure of the Annual Percentage Rate
to home buyers shortly after they apply for the loan.
Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying
the status and balance of his/her financial accounts.
Verification
of Employment (VOE)
A document signed by the borrower's employer verifying his/her
position and salary.
Warehouse
Fee
Many mortgage firms must borrow funds on a short term basis in
order to originate loans which are to be sold later in the secondary
mortgage market (or to investors). When the prime rate of interest
is higher on short term loans than on mortgage loans, the mortgage
firm has an economic loss which is offset by charging a warehouse
fee.
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