What is a fixed rate mortgage?
A fixed rate mortgage is one in which the interest rate remains the same throughout the life of the loan. Borrowers, such as 1st time home buyers and retirees, often choose fixed-rate mortgages because they prefer a stable rate that is not subject to interest rate fluctuations. Fixed rate mortgages are great for consumers considering occupying their new home greater than 5 years; or to those who are simply not sure. Keep in mind, no matter how much you prepay on this type of mortgage, the payment is fixed and will remain the same. Some fixed rate loans do, however, allow you to recast the loan and re-amortize at a selected date.

What is an ARM?
An ARM is an adjustable-rate-mortgage, in which the interest rate changes periodically to reflect changes in a pre-determined Index, such as a T-Bill (Treasury bill), LIBOR (London Interbank Offered Rate), COSI (Cost of Savings Index), or the MTA (Monthly Treasury Averaged). Borrowers often choose these loans as they offer a lower initial interest rate than fixed rate mortgages. These types of mortgage programs are great choices when buyers know they will be occupying their new home for a short period of time. ARM's usually remain fixed for a set number of months or years; after which, they adjust based on a pre-determined schedule (usually every month, six-months, or every year. Most ARM's have annual and lifetime caps on the interest rate to protect borrowers from excessive rate increases.

Interest-Only Mortgages
An interest-only mortgage is one where the amount owed remains the same and the regular payments are made up solely of interest. At the end of the interest only period, the amount owed is the same amount as initially borrowed. In fact, FNMA (Fannie Mae) provides an interest-only mortgage through ARM programs or a fixed rate mortgage. Interest only loans are often used for investment property purchases or short term loans.

What is a conventional home loan?
A conventional loan is one not guaranteed by the Federal government. Instead, these mortgages are purchased on the secondary market by the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA) or the Government National Mortgage Association (GNMA). FANNIE MAE (FNMA) and FREDDIE MAC (FHLMC), which are quasi-governmental agencies, buy and sell large quantities of mortgages and work with financial institutions to obtain necessary capital. GINNIE MAE (GNMA) serves the equivalent role for government FHA and VA home loans.

What are conforming and non-conforming mortgage loans?
Conforming loans fall within FANNIE MAE and FREDDIE MAC maximum loan limits. As of January 1st, 2006, the conforming loan limits, set by The Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) for single-family properties will be increased to $417,000. Loans which meet all other borrower and property requirements of these two agencies may also be described as conforming. Loan amounts above the $417,000 limit are generally considered non-conforming, and are sold as securities on the secondary market. As

What are FHA and VA loans?
The Federal Housing Administration, or FHA, is a part of the Department of Housing and Urban Development (HUD) which insures participating lending institutions against loss from default on qualifying mortgages. Home loans from the Veterans Administration, or VA, assist qualified Veterans in purchasing homes by guaranteeing the lenders against default. VA Home Loans are great for qualified Veterans that want a low interest rate mortgage with no money down. For more information on eligibility or other VA related information call our office or visit VA Home Loans.

What is equity?
Equity is the portion of your property's value that exceeds the amount of the mortgage or other liens on the property. You "build up" equity as your property value increases and as you pay down the principal on your mortgage or mortgages.

What is a home equity loan vs. home equity line of credit?
A home equity loan or home equity line of credit allows you to borrow money by offering the equity in your property as collateral for the new loan usually as a 2nd positioned mortgage. Unlike a fixed 2nd mortgage where the borrower receives a lump sum and makes fixed payments for a specified term (usually 15, 20 or 30 years); the home equity line of credit allows you to make payments only on the amount you draw from the account. It literally is a credit card attached to your home with all of the benefits; such as a much lower rate and possible tax deductions.

What is a "B", "C", or "Portfolio" mortgage?
Mortgages which meet the usual standards for credit and property are typically called “A” paper mortgages. Loans which do not meet these standards are referred to as "B","C" or "Portfolio" type mortgages. The interest rates for these types of mortgage are generally higher than that of an "A" paper mortgage. If you are considering one of these mortgages, be cautious of any "pre-payment penalty".

What is a balloon loan?
A balloon loan is one which is amortized over a longer period than the term of the loan. Usually, a balloon loan has a term of fifteen years, but is amortized over 30 years to keep monthly payments manageable. At the end of the fifteen years, the borrower must repay the entire principal due on the loan in one lump sum, called a "balloon" payment. Always ask if there is balloon payment due especially when it comes to 2nd mortgages and portfolio loans.

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