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Mortgages

What kinds of mortgages do I have to choose from?

Mortgages are not a one-size-fits-all item. Fortunately, there are many different options to choose from…one or more that’s likely to fill the bill for you. Of course, different lenders offer different rates, varying fees. What you need to do is study your financial situation and your housing goals, then weigh and compare several lenders’ offerings. Briefly described below are a number of mortgage programs you might consider.

30-YEAR, FIXED RATE CONVENTIONAL MORTGAGE

Made by a commercial lender. Fixed rate for the 30 year life of the loan. Typically, down payment as little as 5%. Private mortgage insurance required if less than 20% down.

15-YEAR FIXED RATE CONVENTIONAL MORTGAGE

Made by a commercial lender. Fixed rate for the 15 year life of the loan. Rates typically a bit lower than 30-year mortgage. Monthly payments only slightly higher than a 30 year. VA and FHA loan programs also offer 15 year products.

ADJUSTABLE-RATE MORTGAGE

Rates are initially lower than those for 30 year mortgages. Adjusts up or down periodically in concert with a financial market index. At first the rate is set for a specific term, say 1, 3, 5, 7 or 10 years. At the end of that period, the rate adjusts on an established schedule, often annually.

VA LOAN

Available to qualified Veterans. No or low down payment. Subject to the VA mortgage funding fee which can amount to as much as 1% of the loan. Can be combined with second mortgages. Assumable by qualified home buyers.

FHA LOAN

Good for buyers who can afford a smaller down payment. Government issued loans. Limited loan amount. Assumable for qualifying future buyers.

TWO STEP LOAN

Hybrid between a conventional 30 year and an ARM. Fixed rate for 5, 7 or 10 years; adjusts to market interest rates for years left on loan. Typical lower rate for first segment of loan; second segment rate conditional on lender’s approval.

ASSUMABLE MORTGAGE

A new buyer takes over an exiting mortgage at its prevailing rate. Works to new buyer’s advantage when current rates exceed the original mortgage rate. Saves on closing costs.

SELLER FINANCING

Seller arranges financing, often using their equity in property as a first or second mortgage. Sometimes involves a balloon mortgage repaid at then end of an agreed upon period.

BUY DOWN MORTGAGE

A cooperative effort. Third party or seller enhances down payment to “earn” lower interest rate for buyer. Could be handled as a graduated plan, permanent buy-down or multi-year plan.

WRAP-AROUND MORTGAGE

New mortgage “wraps in” the older, assumable mortgage. Typical interest rate is better than prevailing rates, but not as low as assumed mortgage’s rate. Term is time remaining on original loan. Payments go to new lender or seller who sends appropriate percentage to first lender.