Mortgage

A Mortgage can be obtained in a variety of combinations - a 15 Year, 30 Year, ARM, Balloon, Fixed Rate and Two Step just name just a few.


We will try to explain the differences with each type of Mortgage.

Please carefully look over your particular financial situation, your income, savings, job dependability, etc. before making any decisions about a type of Mortgage.


The two most common ways to obtain a Mortgage of any kind are either a self-funded Mortgage Lender or a Mortgage Broker. The self-funded Mortgage Lender will typically be a bank, credit union, etc. A Mortgage Broker will be an "agent" for easily 100 different investors that purchase Mortgages. Most self-funded lenders do not charge extra fees to get your mortgage. However, they may require a more credit worthy applicant.

A Broker is not self-funded so they will charge fees and points to obtain a loan for you.

A "Mortgage Commitment" is usually required by a certain date to be sure you will be able to purchase the property you contracted for at the price you agreed to. This date will typically be within 2-4 weeks of the purchase contract acceptance and usually at least 10 days of more before the settlement date.

This "commitment" requires lots of paperwork, pay stubs, proof of your income/savings, etc. It is also much more difficult to get from a Mortgage Broker because they are only an agent securing investors for your loan. The self-funded mortgage company will be an easier commitment to obtain since they will have the funds in house to commit to your mortgage at settlement.

Almost all types of lenders will "Sell" your Mortgage after it has been signed for at Settlement - this keeps their money flow going for their next loan applicant.

Fixed Mortgage

A Fixed Mortgage is just what the name implies -  the interest rate will remain at a fixed cost to the borrower for the entire length of the contract.

The longer the term of payments (30 year versus 15 year) will determine the interest rate as well. Typically, if you are extending the mortgage out to a 30 year term, the lender will charge a little more for tying up their money that long.

A 15 year mortgage will get you a lower interest rate and a quicker payoff of your mortgage. However, your payments will be higher because the loan amount you borrow will be the same.

ARM's

An ARM is an adjustable rate mortgage. There are quite a few varieties and types of these. These types of loans are more risky and require some very carefully analyzing before going this route!

ARM's will be anywhere from a 1 year adjustable rate to a 10 year adjustable rate (based on a 30 year mortgage).

If you are really good at predicting the economy and interest rates and probably have plans to sell of re-finance your home within a certain period of time, an ARM may work for you.

In a One Year ARM, the rate will be lower that first year and perhaps allow a larger purchase amount. However at the 1 year anniversary, the interest rate will be adjusted. Each company is different in what formulas, caps and rates they charge for these loans. You must ask very specific questions and know what you are doing.

A 10/1 type of Arm will allow the homeowner to have a fixed rate for the first 10 years of a 30 year mortgage. After that period of time, the interest rate is adjusted every year thereafter. Usually, this purchaser anticipates moving to a different home within the 10 years (at the reduced first 10 year rate).

A 3/3 or 5/5, etc. type of loan is usually where the interest rate is fixed for the first 3 or 5 years and then changes according to the current rate. It will then change again at the 3 year or 5 year anniversary, for the length of the loan.

Balloon Mortgage

A Balloon Mortgage is a little more unique. They are for a fixed period of time and then a "balloon payment" is due that will be considerably large! The monthly payments on these mortgages are usually only for the interest - not the principal. Therefore, when the balloon payment is due - it must be paid in full or re-financed.

Refinancing can be very dangerous - especially if you must refinance through the original balloon payment lender! Kinda like they've gotcha!

Two Step Mortgage

The two step mortgage is similar to an ARM. Usually with this, the borrow has the option of selecting an ARM type payment for the anniversary date or a fixed rate. Again, these are usually determined by current market conditions and can be just as risky!

Reverse Mortgage

A Reverse Mortgage is only offered to homeowners 62 and older. They are allowed to borrow against the equity they have in their home and not make any payments on this "loan". They may choose to receive one "lump sum" from the lender or actual monthly payments.

There are several types of these and all require certain restrictions, etc. Again, do your research very carefully before signing anything!



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