Types of Loans

Adjustable Rate Mortgage
Adjustable Rate Mortgages (ARMs) feature an interest rate that adjusts up or down at specified intervals of the mortgage term. The initial interest rates for ARMs are lower than those of fixed rate mortgages. However, after that preliminary low-rate period ends, the rate adjusts periodically – usually upwards. This makes ARMs a viable choice for borrowers who do not plan to stay in their home for an extended period of time. Others choosing an ARM run a risk of suddenly being faced with unaffordable monthly payments.

ARMs are typically easier to qualify for than fixed rate loans because the starting rate and payments are lower.

A wide variety of ARMs are available, offering varying initial fixed rate periods and adjustment terms. ARMs featuring initial fixed rate periods of three, five, and seven years, with rates adjusting annually thereafter, are common. These are referred to as 3/1, 5/1, and 7/1.

Conventional Mortgage
Loans that are not insured by the federal government and for amounts under limits established by Fannie Mae and Freddie Mac (government-regulated private corporations) are considered conventional loans. Fannie Mae and Freddie Mac administer these loans.

FHA Loan
FHA loans are insured, but not funded, by the Federal Housing Authority. Essentially designed for low- and middle-income borrowers and first-time borrowers, FHA loans tend to have more lenient qualifying criteria than conventional loans.

Fixed Rate Mortgage
A fixed rate mortgage has an interest rate and monthly payments that never change. Fixed rate mortgages gives the borrower stability because they are unaffected by the ups and downs of fluctuating rates, there is no risk of a sudden rate increase.

Shorter-term fixed rate mortgages offer significant interest savings over longer-term fixed rate mortgages, but have higher monthly payments.

Hybrid Mortgage Loans
Hybrid mortgage loans, a combination of fixed and ARM loans, come in different varieties.

• Buydown Mortgage
  With a buydown mortgage, the borrower pays the lender an initial lump sum payment in exchange for a reduced rate and monthly payments during the first few years of the loan. With this type of hybrid mortgage loan, the initial payment can also be financed, in some cases.

• Convertible ARM
  Some hybrid mortgage loans include an option to convert to a fixed-rate mortgage at designated times in order to avoid rising rates. The new rate is established at approximately the current market rate for fixed-rate mortgages.
  
  Some convertible mortgages consist of a fixed rate loan with a rate reduction option. In a declining rate environment, the loan can be adjusted to a new lower fixed rate for a nominal fee. Again, rates and points for these types of hybrid mortgage loans can be a little bit higher than other loans.

• Graduated Payment Mortgages
  Graduated payment hybrid mortgage loans have payments that start low and gradually increase at predetermined times. A lower initial payment allows you to qualify for a larger loan amount. The monthly payments will eventually be higher in order to catch up from the lower payments. This loan negatively amortizes during in the beginning, and then rapidly pays off principal in later years.

• Two-Step Mortgage
  Two-Step hybrid mortgage loans have a fixed rate for a certain period, usually five or seven years, after which the interest rate adjusts to a current market rate. After that adjustment this hybrid mortgage loan maintains the new fixed rate for the remaining 23 or 25 years.

Interest Only Loans
Loans in which for a set term the borrower pays only the interest on the money borrowed; the principal is not repaid. At the end of the term the borrower may renew the interest-only mortgage, repay the principal, or convert the loan to a principal and interest payment loan.

Jumbo Loan
Jumbo loan amounts exceed the conventional loan amount limit of $417,000. These mortgages are funded by the private investment market.

Reverse Mortgage
A reverse mortgage is a loan against your home that you do not have to pay back as long as you live there. To qualify for a reverse mortgage, you must be at least 62 years of age and have some equity built up in your home. There are no income or credit requirements but you must occupy the home as your primary residence.

VA Loan
The Veterans Administration insures, but does not fund, loans for those with qualified military service. These loans offer more relaxed qualifying criteria and less stringent down-payment requirements than conventional loans.

There are many benefits in buying real estate, please feel free to contact me if you have any questions.

I specialize in the cities of Alhambra, Monterey Park, San Gabriel, Rosemead, Temple City, Arcadia, Pasadena, South Pasadena, San Marino, El Monte, Irwindale, Monrovia, Bradbury, Sierra Madre, Duarte, Altadena, La Puente, Covina, Azusa, La Verne, San Dimas, Montclair, Claremont, Upland, Rancho Cucamonga, Hacienda Heights, Rowland Heights, West Covina, Diamond Bar, Walnut, Chino Hills, and surrounding areas.