Adjustable Rate Mortgages (ARM’s)

An adjustable rate mortgage will have a period of time that the rate remains fixed and then a period of time where the rate may change. You will often here ARM’s notated as 1 yr ARM’s, 2 yr ARM’s, 3 yr ARM’s, 5 yr ARM’s, 7 or even 10 yr ARM’s. Here’s what it means...

The first number is indicating the length of time that this mortgage plan will offer a fixed rate. At the end of that period the rate is subject to change. The program will have "caps" that will limit the movement of the rate (up or down) after the initial fixed period. So an ARM with 2/5 caps indicate that the loan can go up or down 2% at any one time and never more than 5% during its lifetime.

After the initial fixed period the rate can change. There are two integral pieces to determining the change amount. Its actually very simple. Every ARM program has an Index and a margin.

The index will be some predetermined financially Tracked resource. For example "Prime Rate" is a popular "INDEX." Also an acronym called "LIBOR" which stands for the London Inter Bank Offered Rate. There are many many indices that may be used. Check your local business paper or periodical, or even the web to find the exact Index you are looking.

The margin is simply a predetermined "add" to the index. Maybe you have heard your local bank advertising Prime plus 1 or Prime plus 2. That number is the margin. For standard mortgage programs the margin varies wildly and could range anywhere from 2 up to 6 or even 7.

So we have an ARM loan that has an Index and a margin. It also has "caps" that limit movement of the rate. Make sense? Great.

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Extendable or "Balloon" Mortgages

The term Balloon is a little misleading so we now use a term called Extendable Mortgages. These two words are interchangeable. An extendable loan acts very much like an ARM loan, it has a fixed rate period. So a 5 yr Extendable or a 7 yr Extendable have rates that will not change for 5 or 7 years. At the end of this predetermined period of time, you have some choices. You may...

Pay the loan off. This can be accomplished by physically eliminating this liability or by refinancing the existing mortgage into a new one.

Transfer to the present market rate for 30 yr fixed rates at that time. There is a small one time fee to roll this loan to a fixed rate for the remainder off the amortization period. The fee usually ranges between $250 and $500.

The extendable mortgage option does not have caps (like an ARM loan does) for how much the rate can climb. But it can change once and only once. Then it becomes a fixed rate loan from that point forward.

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HELOCs

This an acronym for Home Equity Line of Credit. For many years we have utilized HELOCs primarily as 2nd mortgages that offer you a line of credit, presenting you access to the equity in your home without the expense of another mortgage loan. Well now we have begun offering HELOCs as a tool to purchase homes, refinance homes, or do whatever you may choose. It is offered as a 1st mortgage loan instead of the typical 2nd loan. Understand however, 1st mortgage, 2nd mortgage, 5th mortgage... these are only representing the "place in line" of this particular mortgage instrument. That’s all it is. Depending upon your financial situation, it is common to do HELOCs all the way up to 100% of the value of the home.

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Interest Only Products

This is not a freestanding loan. It is simply a way of structuring any of the previous loan product options. Interest Only Products are available on fixed rate mortgages, ARM loans, Extendable loans, and on HELOCs. They are, however, most popular when used on either an ARM loan or on an HELOC loan. This is by far the single most important advancement that has been offered in the recent past.

Interest Only loans work this way... You will be obligated to pay the accrued interest each month. Nothing More. You are allowed to pay any principle amt you wish but are not obligated to do so. Many Interest Only programs only offer the feature for a fixed period... 5 years, 7 years, 10 years. At the end of the period you must then begin paying interest.

IF WE COUPLE THE INTEREST ONLY FEATURE WITH SOUND FINANCIAL PLANNING, YOU CAN REALIZE TREMEMDOUS ASSET ACCUMULATION DURING THE INTEREST ONLY TIME PERIOD.

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Full Documentation

This is a loan where we use typical mortgage rules with regard to documenting Income, Employment, and assets. This is the type of loan where you would provide paystubs, w’2s, bank statements, and possibly Tax returns. This documentation option is available on every Program or Product we offer. It will provide you with the best rate for any specific program type.

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Stated Income

Very Simple. Just like it sounds. You would "State" your income. Employment is verified but income is not. Typically attractive to Self employed Borrowers that may not be able to fully document all income. There are limitations on this loan so don’t get carried away. The income you "State" must seem reasonable for the job. Also there is often an asset requirement of 3 or 4 times your income. For example if you "state" you income at $5000 per month you would need to prove that you have 3 or 4 times that amount saved. The rate of interest on this scenario would increase slightly over a "Full Doc" type.

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No Ratio

Your employment is verified through a call to your employer (or CPA if self employed) but you do not indicate any income. Be careful… if your bank statement shows a direct deposit or anything similar... that’s a problem. We have solutions for that problem, but be careful.

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No Documentation

This is a loan where very minimal documentation is done. Income is not verified. In many cases assets are not verified. Quite often employment is not verified. As you may guess, this loan will carry a higher interest rate.

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