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Basic Mortgage Loan Types

Below is a list of the basic types of mortgage loans.  There are many variations of these programs and numerous loan options that we offer.  Your Mortgage Specialist will be happy to fully explain all of your loan options.

Fixed Rates - Fixed rate mortgages have level, constant payments of principal and interest because the interest cannot change.  It is fixed.  The most common terms for fixed rate loans are 15 and 30 years, but loans can be amortized over 10, 20, or 25 years.   These are the safest, most secure loan programs.  The level monthly payment loans make fixed rate loans attractive to those staying in properties over 8 - 10 years.

Adjustable Rate Mortgages (ARMs) - These loans have a fixed period during which time the payments are fixed and level.  For example, a 3/1 ARM is fixed for the first three years, then becomes a 1 Yr. adjustable rate from years 4 - 30, adjusting every year to a new rate, subject to annual and lifetime caps on increases and decreases.  The adjustment each year after the initial fixed rate period is determined by this formula; Rate = Index plus Margin.  The most common index is the US 1 Year Treasury Constant Maturity.  The margin is determined by the lender, usually between 2.75% and 3.00%.  Rate adjustment caps generally apply to limit increases in rate per adjustment and over the life of the loan. ARMs are for the more sophisticated borrower who knows the length of time in the property is limited or knows that a refinance opportunity will occur during the initial fixed rate period of the ARM.

Balloon or Two-Step Mortgages - These are fixed rate loans that generally have a 5 year or 7 year fixed rate period.  At the end of the fixed rate period,  These loans will have a balloon, or final payment provision, or have a lender-opted conversion to a new fixed rate for the remaining 25 or 23 year term.   Certain criteria must be met on a two-step loan for the lender to grant a new term at a new interest rate.  It is likely that the conversion feature on the two-step loan is not valuable to borrowers since the conversion rate is slightly higher than what they could refinance their loan for on the open market.

Piggyback 1st and 2nd Mortgages  -  A combination loan of a 75% or 80% 1st mortgage and a 15% or 10% 2nd mortgage can help savvy borrowers escape paying Private Mortgage Insurance (PMI) with as little as 5% or 10% down.  Normally, a down payment of at least 20% is required to avoid paying PMI.  These loans are typically known as 80/10/10's or 75/15/5's.  These combination loans can be done on fixed rates and most adjustable rate programs.  In some cases, an 80/15/5 can be done allowing the qualified borrower to put down only 5%, while still avoiding PMI.