Loan Products
Adjustable Rate Mortgage (ARM) Fixed Rate Mortgage
With a fixed rate mortgage, you know exactly what your principal and interest payment will be each month for the life of your loan. It won’t change because your interest rate doesn’t change. Your taxes and insurance component of your payment towards escrow can change (and probably will) if your taxes and insurance change. Unfortunately, there’s no way to lock those in. If interest rates go up, you’re protected with a fixed rate mortgage. But, you won’t benefit if rates go down. You can always take advantage of falling rates by refinancing. Fixed rate mortgages might be right for you if: Compared to fixed rate mortgages, Adjustable Rate Mortgages (ARMs) offer a lower interest rate to start, so your monthly payments are generally lower. But, the interest rate moves up and down with the market based on an "index". Some of the more common indices include U. S. Treasury Bills, Cost of Funds Index (COFI) and the London Interbank Offered Rate (LIBOR). Most ARMs have an initial fixed rate period where the interest rate doesn’t change followed by the rest of the loan’s lifetime period where the rate is adjusted at predetermined intervals. Many ARMs have caps that limit how much your interest rate can change per period as well as for the life of the loan. Also be aware that there are some very low rates ARMs that start out with "discounted" rates. These discounted rates are below the market rate and will definitely go up at the first adjustment period. Adjustable rate mortgages might be right for you if: · You want more property than you can qualify for now with a fixed rate. · You are confident your income will increase or rates will not go up much. · You plan on selling or refinancing within seven years of buying your home. Jumbo Mortgages or nonconforming loans exceed the loan limits set by the two publicly chartered corporations (Fannie Mae and Freddie Mac) that buy mortgage loans from lenders. The 2006 single family loan limit is $417,000. If you need to borrow more than that amount, you need a jumbo mortgage. These jumbo mortgages typically have a higher interest rate than conforming mortgages. This is a traditional mortgage product. It can be a standalone, which is taken out on a separate application process or piggyback, taken out in conjunction with a first mortgage loan. A second mortgage provides you a fixed amount of money repayable over a fixed period of time. The schedule usually calls for equal payments until paid in full. This is a permanent lien on the property. A good use of this product would be to place an addition to your home. The APR on this product takes into account the interest rate charged plus points and other finance charges. You should consult your tax advisor when considering this option with any tax benefit questions. If you use your principal dwelling as collateral, it will be subject to the 3 day right to cancel same as the HELOC. HELOCS - Home Equity Line of Credit This is a form of revolving credit in which your home is the collateral. Your home is usually your largest asset. The APR for a HELOC is based on the periodic interest rate alone. It does not include points or other charges. If the home is your principal dwelling, the Truth in Lending Act gives you 3 days from the day the account is opened to cancel the credit line. If you notify the Lender to cancel, all fees paid must be returned. The Lender is to supply a program disclosure outlining the functionality of the HELOC. If you sell your home, you will be required to pay off any remaining balance due. You should consult your tax advisor if you have questions on how this variable rate product impacts your taxes.
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