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 which 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.
