Mortgage Guides:

• Knowing and Understanding Your Credit

  • This guide explains what credit is and how to establish good credit, repair credit problems, and take control of your credit as the first step in the home-buying process.

• ng the Door to a Home of Your Own

  • This step-by-step guide explains the home-buying process, including how to finance a home and how the mortgage process works.

• Choosing the Mortgage That's Right for You

  • This guide will help you learn more about shopping for the right mortgage for your personal situation.

• Borrowing Basics: What You Don't Know Can Hurt You

  • This guide explains what predatory lending is and how it can affect you. It also provides helpful tips on how to get the best loan and ways to avoid bad loan choices that could result in the loss of one's home.

"Fixed Rate Mortgages"

            A fixed rate mortgage is the most widespread of all mortgage programs.  During the past few years, the number of fixed rate mortgages has increased because of historically low mortgage interest rates.  With lower interest rates, the payments on fixed-rate mortgages are more affordable.  The only difference between fixed-rate mortgages the mortgage term length.  Fixed rate mortgages have a fixed interest rate and fixed payments during the term of the loan. 

• 30 Year Fixed-Rate Mortgage

  • A 30-year fixed rate mortgage gives the best tax advantage because it has the greatest interest deduction.  The 30-year term is appealing to homeowners who are seeking the lowest monthly payment, especially if they are seeking stability and security in their payments.  In a 30 year fixed rate mortgage, the monthly payments are the same during the full term of the loan.  Each payment goes to paying both principal and interest. 
     

• 20 Year Fixed-Rate Mortgage

  • A 20 year fixed rate mortgage is the same as a 30 year fixed rate mortgage except that the duration of the loan is shorter.  The shorter term results in
    a significant savings in interest over the course of the loan. 
     

• 15 Year Fixed-Rate Mortgage

  • A 15 year fixed rate mortgage is the same as the 20 year fixed rate mortgage and the 30 year fixed rate mortgage.  The 15 year fixed rate mortgage calls for higher payments, but it results in a large reduction of principal with each payment.  If you can afford the higher payments, you
    will save in the long run.

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"Adjustable Rate Mortgages"

An adjustable rate mortgage has an interest rate that changes based on changing market rates.  This kind of mortgage usually offers an initial interest rate that is significantly lower than that of fixed rate mortgages, but it doesn�t offer the stability or assurance of a known mortgage payment in the years to come.  The interest rate on an adjustable rate mortgage is adjusted periodically based on an index that reflects changes in market interest rates.  Adjustable rate mortgages have adjustment periods that determine how frequently the interest rate can change.

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"Interest-Only Mortgages"

            In the past years, interest-only loan programs have become very popular, especially in nonconforming loans.  Interest-only loans are made to offer the lowest payment possible. This is achieved because the borrower is not paying anything toward principal in their monthly payment.  The major advantage of these programs is a lower monthly payment.

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"Combo Loans"

            A combo loan is when a second mortgage is taken at the same time as a first mortgage in order to reduce or eliminate private mortgage insurance and allow the borrower to buy the home with a smaller or no down payment.

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"Biweekly Mortgage"

            This program allows the borrower to make one-half of the monthly mortgage payment every two weeks, which adds up to one extra payment per year.  This mortgage program helps the borrower save thousands in interest.

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"Graduated-Payment Mortgages"

            A graduated payment mortgage is a type of mortgage where the payments start off low, increase at preset times, and then stabilize.  The difference between a graduated payment mortgage and an adjustable rate mortgage is that a borrower who takes out a graduated payment mortgage will know what the payments will be through the duration of the mortgage loan, even though the payments change.  The initial lower payments are not sufficient to amortize the loan, and the interest is not sufficient enough to cover the interest due on the loan.  The result is that the interest that is not paid during the loan is added to the principal amount of the loan.  This is also known as negative amortization.

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"Growing Equity Mortgages"

            One type of graduated payment mortgage is the growing equity mortgage.  Unlike an adjustable rate mortgage, a graduated payment mortgage has a fixed payment schedule, so the additional principal payments reduce the duration of the mortgage.  The additional payments avoid the negative amortization, and the payments decrease while the term of the loan remains constant.  The monthly payments for the growing equity mortgage increase annually.  It is the increased amount that is used to reduce the principal balance and shorten the term of the loan.  This is a great choice for a borrower who is looking to build equity.

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"Balloon Mortgages"

            Balloon mortgages are mortgages that offer a low initial interest rate. This interest rate is lower than the fixed-rate loans for 5 to 10 years, and then it will require a balloon payment.  The balloon payment is the final payment of the loan, and pays off the entire loan balance.  Monthly payments are low because the payments for the first 5 to 10 years are paid off at a low interest rate over the total length of the loan, which is usually 30 years.

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"Reverse Mortgages"

            A reverse mortgage is a mortgage that allows older homeowners to use the equity in their home as tax-free income without having to take on a mortgage payment.  To qualify for a reverse mortgage the borrower must be at least 62 and have significant equity in his/her home.

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"Amortization"

            A fully amortized mortgage is a mortgage that must be paid off by the end of its term.  To amortize means to decrease the principal balance on the mortgage by a monthly payment of both principal and interest.  An amortization schedule, which gives the borrower a layout of their payment, is given to every borrower.  It is enclosed in every loan package.

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             "Negative Amortization"

            Negative amortization occurs when the monthly payments are not large enough to pay all of the interest that is due on the loan.  The unpaid interest is then added to the balance of the mortgage.  The danger of negative amortization is that the homeowner can end up owing more than the original amount of the loan.  There are two types of negative amortization.  Graduated payment mortgages have scheduled negative amortization, while adjustable rate mortgages have a chance of amortizing negatively.  There is usually a limit by which the loan balance can increase over the life of the loan.  Negative amortization loans are best suited for borrowers with a large savings or seasonal businesses, who want the option of lower payments during certain months, but plan to pay larger amounts when they are able.

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            "Flex Arm Mortgages"

            The flex-arm mortgage is structured in a way that gives the borrower the flexibility of three payment options.  Each month the lender sends the borrower a payment coupon that calculates three payment options: negative amortization amount, interest-only amount, fully amortized amount.  This program is usually attractive to borrowers who are self-employed or those who have a commission based income.  This is because some months are slower than others, and the borrower will have several payment options.

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            "Temporary Buydowns"

            In a temporary buydown, the borrower prepays the interest in order to obtain a lower rate for the first few years of the loan.  The buydown agreement and funds are collected at closing and placed in escrow during the duration of the temporary buydown.  The money in the account is used to compensate the monthly payments as stated by the note.