Residential Loan Programs

Fixed Rate Loan

Amortizing Loans

Fixed rates are commonly found with terms of 15 or 30 years. They have a rate that is fixed for the entire term of the loan, and the payments are the same each month until the loan is fully paid (fully amortized) at the end of the term. Sometimes fixed rate loans are available with other terms like 10, 20 or 25 years.

Advantages:
Certainty of a known monthly payment
Fully paid at maturity
Easy to understand

Disadvantages:
Higher initial interest rate than many other alternatives
Extra payments toward the principal balance do not reduce the monthly payments

Balloon Payment Loans

Balloon payment loans are a variety of fixed rate loans, however, they are not fully amortizing. In other words, the loan is not fully paid when the end of the term of the loan. The rates, however, are fixed and are typically based on a 30-year payment schedule.

At the end of the term, which is frequently 5 or 7 years, the unpaid balance is due (balloon payment). In some cases the balance will be refinanced, and in other cases the rate may be reset at the current level for remaining years to 30 years (reset mortgage)

Advantages:
Lower initial interest rates than 30 year fixed
Fixed rate and payments during the initial period

Disadvantages:
Risk of foreclosure if you cannot pay the balloon payment
Reset rate (if available) after initial period can be higher
Timing of balloon payment can be inconvenient

Adjustable Rate Mortgages (ARMs)

Adjustable rate loans typically have a 30-year term, and, aside from an initial period, have an interest rate that adjusts with changes in the money markets. Once the rate begins to adjust, the rate will be set periodically by combining a money market index with a fixed margin over that index value. For example, the rate might be based on a 1-year treasury security index plus a margin of 2.75%. The treasury security index will change with market conditions, but the index, which is added to it, will not change over the life of the loan.

Most ARMs have limits or caps on the amount the rate or payment can change to provide some measure of protection for the borrower. The actual caps and adjustment mechanism will depend of the specific loan program.

The initial rate on most adjustable loans is below that for fixed rate loans. The more popular adjustable rate loans have an initial fixed rate for 3, 5 7 or in some cases 10 years. Some of these ARMs allow you to make payments of interest only during the initial fixed rate period.

Advantages:
Lower initial rates and payments than fixed rate alternatives
Rates can be fixed for 5-7 years on many ARMs
Lower monthly payments for loans with and interest only payment option

Disadvantages:
Uncertainty associated with a loan whose rate and payments can change
Higher amortization after the initial fixed rate period for interest only loans

Second Mortgages and Lines of Credit (HELOC)

A second mortgage refers to any mortgage which has a subordinate claim on the property used to secure the loan. Mortgages that are made to be seconds typically come in two varieties: a fixed rate amortizing second and as a line of credit. These lines of credit are often are HELOCs (home equity line of credit).

The fixed rate seconds often are for a term of 15 years. They may allow payments based on a 30-year repayment schedule, with a balloon payment after 15 years.

HELOCs are typical adjustable rate loans, with the index being the prime rate. The margin over prime is often a function of the borrower’s credit score, the combined ratio of all loans to the property value (CLTV) and the size of the loan. Different HELOCs have slightly different terms, but typical ones do not automatically repay the principal, but allow payments of interest only or more and then a balloon payment at the end of the term, or an amortization period at the end of the “draw period”.

The most significant feature of the HELOC is the ability to re-borrow any repaid or unused principal during the term of the loan. You only pay interest on the amount that is currently outstanding.

Advantages:
Seconds of any variety can allow refinancing to get additional cash with disturbing a low rate first mortgage
HELOCs are very flexible and help meet unexpected financial demands
Seconds can sometimes be combined with first mortgage to avoid mortgage insurance, or achieve other aims

Disadvantages:
Second mortgages carry higher rates than first mortgages
There are no 30 year fixed rate fully amortizing second mortgages
HELOCs are typically at adjustable rates with fewer limits than other ARMs

Mortgages for First Time Buyer

Mortgages targeted at first time buyers typically modify some rules for qualifying, but do not represent lower cost alternatives. Most programs that fall under this heading assume a first time buyer has limited funds for down payment. Some programs have strict guidelines for maximum income and home price to be eligible, and other programs have no such limits, but simply attempt to meet the needs of those who meet the typical profile of a first time buyers.

Loans that are equal to 95%, 97%, 100% and even up to 107% of the purchase price of the property are available.

Lot and Land Loans

Loans secured by unimproved lots or land parcels are typically available for 50% of the purchase price or appraised value. These land loans will often be for a term of 1 or 2 years, and possibly as long as 5 years. Payments will usually be interest only at a rate based on the current market.

Commercial and Industrial Loans

Call to inquire about current terms available on loans secured by commercial or industrial properties.