What is Negative Amortization?
A negative amortization loan is an adjustable rate mortgage that allows the consumer to tap into home “equity” by offering several monthly payment options. Up to an additional 25% of the original loan amount is available to the borrower. This flexibility works well for consumers who have seasonal income or want more control over their cash flow.However, the borrower must have some degree of financial discipline. Each month, the borrower will choose to make a fully amortized payment, an interest-only payment, or a low introductory rate payment. A fully amortized payment is larger, and...
Read MorePros and Cons of a Bi-Weekly Mortgage Program
When borrowers enter into a contract to make bi-weekly payments on their mortgage, the amortization schedule is accelerated. For example, with a 30-year amortization schedule, the borrower makes 12 payments per year. In a bi-weekly arrangement, the borrower makes 26 ‘half’ payments, which allows the loan to be paid off in 22.8 years instead of 30 years. It’s the same as making 13 monthly payments. This ultimately saves the borrower thousands of dollars in interest rate fees. However, bear in mind that bi-weekly programs usually have some type of setup, transaction, and...
Read MoreIntermediate Fixed Rate Loans
Intermediate Fixed Rate mortgages (sometimes referred to as Short-Term Fixed Rate mortgages, or Hybrids) come in numerous varieties; the 3, 5, 7 and 10-Year Fixed. These are all 30-year loans that carry a fixed rate for a set number of years, and then roll over to an Adjustable Rate Mortgage. For example, in a 7-Year Fixed Rate scenario, the rate would be fixed the first seven years, and the loan becomes an Adjustable for the remaining 23 years. The main advantage of these hybrid programs over a traditional 30-Year Fixed loan is typically a slightly lower interest rate. These types of loans...
Read More15-Year Fixed Rate Loans
A 15-Year Fixed Rate loan works well for borrowers who are nearing retirement and want to be debt-free when they get there. Because payments in a 15-year scenario are amortized over half the length of a 30-Year Fixed Rate loan, the monthly payments will be significantly higher in comparison. This is an important factor to consider before committing to a 15-year loan. However, the interest rate on a 15-Year Fixed Rate loan will be lower for the same reason – financing for 15 years costs much less than financing for 30 years. If a borrower is 50 years old and would like to be debt-free...
Read MoreHow Adjustable Rate Mortgages Work
During the last decade, Adjustable Rate Mortgages (ARMs) have increased in popularity among consumers. These days, few homeowners (especially first-time buyers) remain in their homes for more than seven years. In this case, it often makes sense to get an adjustable rate mortgage with a lower rate, especially one with a 5-year or 7-year fixed portion, since they won’t have the loan long enough to be concerned about rate fluctuation. Adjustable Rate Mortgages have three main features: Margin, Index, and Caps. The Margin is the fixed portion of the adjustable rate. It remains the same for...
Read MoreThe Advantages of FHA Loans
In many regions of the US, FHA loans have only recently come back into vogue, so a lot of real estate agents and mortgage originators aren’t familiar with this great resource. The following are a just a few of the recent changes that have made FHA loans a more attractive option again for some consumers looking to buy a new home or refinance an existing one: 1) Congress passed the Stimulus Act of 2008. During the recent housing boom, home values surpassed FHA loan limits in many regions of the US. The recent enactment of this important legislation, however, increased FHA loan limits up...
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