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Fixed
Rate Mortgage
The interest rate stays the same throughout the
term of the loan - usually 15 or 30 years - so the
principal interest portion of your payment remains
the same. Payments are stable but initial rates
tend to be higher than adjustable rate loans and
often cannot be assumed by a subsequent buyer.
Balloon Mortgage
This is a loan that must be paid off after a certain
period. The advantage they offer is an interest
rate that is lower than a mortgage that is made
for 30 years.
Adjustable-Rate Mortgage (ARM)
The interest rate is linked to a financial index,
such as a Treasury security or a cost of funds -
so your monthly payments can vary up or down over
the life of the loan - usually 25 to 30 years. Interest
rates can change monthly, annually, or every 3 or
5 years. Some ARMs have a cap on the interest rate
increase, to protect the borrower. Other terms relating
to adjustable-rate mortgages:
:: Adjustment period: The length of
time between interest rate changes. Example: one
year ARM-interest changes annually.
:: Cap: The limit on how much an interest
rate or monthly payment can change at each adjustment
or over the life of the loan.
:: Conversion clause: A provision in some
loans that enables you to change an ARM to a fixed
rate loan, usually after the first adjustment period.
This may require additional fees.
:: Index: A measure of interest rate
changes used to determine changes in the loan's
interest rate over the term of the loan.
:: Margin: The number of percentage
points a lender adds to the index rate to calculate
the ARM's interest rate at each adjustment.
VA Loan
The VA does not lend money, it guarantees a portion
of the loan so that lenders who originate the loan
feel comfortable with their risk. Qualified veterans
can obtain loans up to $203,000 with no down payment.
VA-guaranteed loans can be combined with second
mortgages and are assumable upon qualifying by any
future buyer.
FHA Loan
FHA does not lend money or make a loan; rather,
it insures loans. The down payment can be as low
as 2.25%. Discount points may be paid by either
buyer or seller. FHA charges a 2.25% up front Mortgage
Insurance Premium (or as little as 2% for a first
time home buyer) that can be financed in the mortgage
amount or paid in cash (no premium is required for
condominiums). The borrower must also pay an annual
Mortgage Insurance Premium or .5% which is collected
monthly.
Seller Assisted Second Mortgage
The seller of the house lends the buyer enough to
make up the difference between the purchase price
and the down payment plus first-mortgage balance
(a commercial lender may also make this kind of
loan). The terms including the interest rate, are
based on buyer/seller agreement. It is often a short-term
(5 to 15 year) loan; sometimes "interest only" payments
until the term date when the balance is due in full.
A buyer can then refinance the home.
Assumable Mortgage
Buyer "takes over" or assumes the mortgage obligation
of the seller (with concurrence of the lender).
The interest rate doesn't change and is sometimes
lower than current rates. Often the loan fees are
less as well. |
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