All of the following loan programs do NOT contain any pre-payment penalties.

• 30-year fixed -- This is the most popular loan by far. The loan amortizes over 30 years. While your total principal ("P") & interest ("I") components of your payment will never change until the loan is paid off, the proportion of P & I will change with each and every payment. For instance, on payment #1, ~ 99% of the P&I constitutes interest, and on payment #360 (if you ever get there) ~ 99% of the P&I constitutes principal reduction.

-- This type of loan is recommended if you plan to sell the property 12 + years, or you believe there exists an increasing or neutral interest rate environment.

You can opt to have this type of loan amortize on a 25-year or 20-year basis. The pricing has been very similar to that associated with the 30-year fixed. Because the price incentive is small or insignificant, you can easily accomplish the same objective (paying off your loan earlier) through regular prepayments. Be sure to ask about the current pricing "spread."

• 15-year fixed -- This is the same type of loan as the 30-year fixed, except the amortization period is based upon 15 years/180 months. Because of this shortened time-frame, your monthly P&I payment is usually ~ 30% higher than that on a 30-year fixed rate loan. The interest rate is usually 0.25% to 0.50% lower than the 30-year fixed, which is a significant price incentive.

-- This type of loan is popular for those interested in refinancing and those whose primary objective is to payoff the loan as soon as possible, thus saving a boat load of interest over the life of the loan. For purchasers, this type of loan is recommended if you are planning to own the property 12+ years, and you feel comfortable handling the ~ 25-30% higher payment.

• 7/23 year extendable balloon (a.k.a. 7/23 two-step) -- This loan program amortizes over a 30 year period. The interest rate and payment are fixed for 7 years. At the end of year 7 (assuming you still own the property), the interest rate will be "re-set," the payment adjusted for the remaining term of 23 years, and those set of circumstances will not be subject to further adjustment over the remaining term. The interest rate will be reset at 0.50% above ~ the market 30-year fixed loan price, associated with 0 points at that time. This 23 year "extension"is predicated upon the following conditions which are required to be corroborated at the end of year 7.

1. You must still be the owner and OCCUPANT of the property
2. There must be no "junior" liens against the property, such as a home equity loan/line.
3. In the preceding 12 months, you did not make a 30+ day late payment on the mortgage
4. The reset interest rate cannot be more than 5.0% above your start rate.

If any of these conditions are not satisfied at the end of year 7, the loan "balloons." You must payoff the loan. Of course, you can always refinance.

-- This type of loan is recommended if you feel you will own the property 4-7 years.

• 5/25 year extendable balloon (a.k.a. 5/25 two-step) -- This type of loan has the same terms & conditions as the 7/23, except the "re-set" occurs at the end of year 5, and the adjustment remains in effect for 25 years. There is usually a ~ 0.125% price incentive versus the 7/23.

-- This type of loan is recommended if you feel rather confident in owning the property 3-5 years.

• 10/1 year ARM -- This loan program is very popular right now. The loan amortizes on a 30-year basis, and for the initial 10 years the rate and P&I payment are fixed. At the end of year 10, the interest rate will adjust to the lower of "index + margin" or "caps" (assuming interest rates have gone up). Call our office for the current index, margin, and caps -- these are subject to change on a daily basis. Once the rate & payment have been adjusted, that condition will remain in effect for 1 year. The rate & payment will adjust every year thereafter until the mortgage is paid off. There is usually a significant 0.375% to 0.625% interest rate incentive versus the 30-year fixed price.

-- This loan program is recommended if you feel that you will own the property for 6-12 years.

• 7/1, 5/1, & 3/1 year ARMs -- These loan programs work exactly as described by the 10/1 ARM, except the first adjustment comes at the end of 7, 5, or 3 years. The 7/1 ARM is priced ~ 0.125% below the 10/1 ARM, the 5/1 ARM is priced ~ 0.125% below the 7/1 ARM, the 3/1 ARM is priced ~ 0.125% below the 5/1 ARM.

-- These loan programs are recommended if you feel that you will own the property before the initial adjustment takes place. These loans are popular with relocation clients and with clients who believe interest rates will be declining in the future.

 

• 1 year ARM -- This loan program offers one of the lowest initial interest rates on the market. It is also one of the riskiest due to the fact that the interest rate, and thus the payment, adjusts each and every year until the loan is paid off. Just as with the other adjustable rate mortgages listed above, the adjusted rate is subject to an "index + margin" and "caps," so there are protections as to the maximum interest rate and payment.

-- This loan is recommended in very particular circumstances such as a very temporary relocation client, a client who feels interest rates are going to be dramatically reduced, or investor purchasers who have some sort of cash-flow motivation.

 

 

Feel free to call our office for a more in-depth discussion about the various 
loan programs or other loan programs you may have seen or heard about.

Licensed by PA Dept of Banking