|Typical Mortgage Types|
Fixed Rate Mortgages
Fixed rate mortgages are available for 30 years, 20 years, 15 years, and even 10 years. There are also “biweekly” mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 “months” worth, every year.) Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable. The most common fixed rate loans are 15 year and 30 year mortgages.
These types of loans have interest rates that are fixed for a specified term (10, 7, 5, 3, or 1 year) and then adjust periodically based on changes in a pre-selected index. The most common indices for these mortgages are Treasury, LIBOR and COFI indexes. Adjustable rate mortgages have lower initial interest rates during the fixed initial term than a long term fixed rate loan which translates to a lower monthly payment. These types of loans are especially attractive to first time home buyers who are usually in their first home less than five years or to any buyers who do not plan on living in the home for the full term of a long fixed rate product (i.e. 30 years).
A home equity loan enables you to borrow money against the equity (the value of your home minus what you owe) you have built up in your home. This loan is subordinate to the existing first mortgage. Home equity loans are often used to pay off credit card debt, pay college tuition or to make improvements on a home. A home equity line of credit is a form of revolving credit in which your home serves as your collateral.
By using this option, the borrower is allowed more buying power because only the interest is being paid on the mortgage. The principal balance is not paid down but at the same time, appreciation on the property still allows the borrower to gain equity.
A jumbo loan is typically a loan that exceeds the conforming mortgage amount (currently $417,000). Jumbo loans can take many forms including fixed rate, ARM and interest only.