• Fixed-rate loans
  These loans ( as the name emplies) have a Locked/Fixed interest rate for the entire term of the loan. Fixed rate loans have traditionally been 15 or 30 year loans, however in todays market you can get fully amortized ( fully amortized means equal monthly payments for an exact term which pays the loan to a 0 balance with its last monthly payment) 10,15,20,25,30 and even 40 year loan terms. About 75% of all new home purchase loans are fixed rate loans. The decission for the consumer in choosing which term is best for you can be a matter of personal choice, however some times financial needs ( 40 year loans will give you the lowest monthly payments) play a factor in your decission. Lets compare a 10 year,20 year, and 30 year loans in the following example.
  
  

  • Example* 200,000 loan at 5.5% interest fully amortized for 10, 20, and 30 years. The 10 year loan has the highest monthly payment of both principal and interest $2,170.53, paid for 120 payments (10 years) the total of payments is $260,463.07. The 20 year loan has principal and interest payments of $1,375.77, paid  for 240 payments (20 years) the total of payments is $330,185.91, and the 30 year loans has the lowest monthly payment of both principal and interest of $1,135.58 for 360 payments (30 years) is a total of payments of $408,808.08.

So in sumation if you can aford the monthly payment on the shortest term loan YOUR MONTHLY PAYMENT WILL BE HIGHER BUT FOR A SHORTER PERIOD OF TIME SAVING YOU HUNDREDS OF THOUSANDS OF DOLLARS OVER TIME. These examples assume the same interest rate for the 10 year loan as the 20 and 30 year loan, typically the shorter the term the lower the interest rate.

• Adjustable-rate loans
  With an adjustable-rate mortgage (ARM), the interest rate you pay is adjusted from time to time to keep it in line with changing market rates. This means that when interest rates go up, your monthly loan payment may go up as well. On the other hand, when interest rates go down, your monthly loan payment may also go down. ARMs are attractive because they may initially offer a lower interest rate than fixed-rate loans. Since the monthly payments on an ARM start out lower than those of a fixed-rate loan of the same amount, you should be able to qualify for a larger loan.
  
  The chief drawback, of course, is that your monthly payment may increase when interest rates go up. The types of people who typically benefit from an ARM are those that are planning to move or refinance in the near future, people with a high likelihood of increasing their income in later years, and people who need lower initial interest rates on their loans to be able to buy a home. How much your payment can increase will depend on the terms of your loan.
  
  Before applying for an ARM, be sure you know how high your monthly payment can go - the so-called 'worst-case scenario'. An ARM has two 'caps' or limits on how large an interest rate increase is permitted: One cap sets the most that your interest rate can go up during each adjustment period, and the other cap sets the maximum total amount of all interest adjustments over the life of the loan. The rates on an ARM usually change once or twice a year, and there is typically a lifetime rate cap (or limit) on both the amount of each individual rate adjustment, and the total amount the rate can change over the whole term of the loan.
  
  

  • Example: If your loan starts at 5 percent, has a 2 percent per-adjustment cap, and a lifetime adjustment cap of 4 percent, you know that your loan might go up to 7 percent the first time the rate changes. You also know that the rate can never go over 9 percent over the life of the loan (5 percent start + 4 percent lifetime cap). Only you can determine if you would feel comfortable paying this interest rate sometime in the future.

  The most popular ARM loans today are Hybred ARM's. These ARM loans have an intial fixed rate for 1,3,5,7, or 10 years.The Hybred ARM's typically offer lower start rates than 15 or 30 year fixed rate fully amortized loans, and the shorter the fixed rate period the lower the interest rate is. This offers the consumer lower monthly payments during the fixed rate period, which in most cases allows the buyer to qualify for a greater home sales price. Most Hybred ARM loans have 3 different types of interest rate caps. The first cap, first adjustment cap is typicaly the same as the life time cap which is 5%.The second cap is the amount the interest rate can change with each adjustment after the first adjustment typically 2% per year, and the final cap is the life time cap or the maximum the interest rate can go up and down over the intire term of the loan. The caps are typically shown to a consumer as 5/2/5 (5% first adjustment/2% each periodic adjustment/5% life time).

• Interest Only Loans
  Another fairly new Hybred loan is the interest only loan. These loans come in monthy adjustable payment option arms, as well as 1 yr.,3 yr.,5 yr.,7yr., 10yr., and 30 year terms. Most interest only loans have a 10 year period of interest only payments. So if you take a 1,3,5,or 7 year fixed rate loan the interest rate will change at the end of the 1,3,5,or 7 year term and so will the payment, however that new payment will still be interets only for the balance of the 10 years. At the end of the 10 year term the loan will change to a 20 year fully amortized loan with paymnet of both principal and interest so that the loan will pay down to a 0 balance in 30 years. The concern for the consumer is projecting your income increases to handle the monthly payment change in the 10th year.
  
  All ARM loans must follow a Published index, these indecies must be published in the local news paper and are commenly know as 1 year or 6 month Treasury notes, 1 year or 6 month L.I.B.O.R (London International  Bank Offered Rate), the C.O.F.I. (cost of funds index) and the Prime rate. While ARM loans can be tied/follow any published index these are the most commenly used indecies. The index in added to a pre set (in your note) Margin to determine your real interest rate. Margins are any where from 2% to 5% depending on the loan. So Consumer be where always ask your Mortgage Professional to explain to you what your " Fully Indexed Rate" will be after the adjustable loan makes its first adjustment.
  
  

  • Example do not be fooled by the advertisement that says your rate will be 1%. This loan has a 1 month fixed rate at 1%, the very next month the interets rate will fully index that means the interest rate you pay will go up from 1% to index plus margin. Lets review, lets say your loan follows the 1 year T-Bill and lets assume for this example that the 1yr T-Bill is 3% and lets say your margin is 2% (remember the margin never changes the index can change daily,monthly,or annually), so in the 2nd month your interest rate will be 5% that is an increase of 4% in one month. Fully Indexed rate is index + margin. The ARM discribed in this example is a real ARM offered in todays market place as a "Payment Option ARM". This ARM has pre set payment caps to protect the consumer from payment shock, however if you chose to pay the minimum payment offered on the "Payment Option ARM" you can have negative amortization (your loan balance gets larger not smaller), and the payment options allow you to pay the minimum payment, a payment which pays all the interest, or a full princple and interst payment.

• HELOC Loan
  • HELOC Loan: What is a Home Equity Line of Credit?
    Home equity Lines of Credit can be an excellent tool to help the existing property owner aquire additional real estate. A home equity line is a form of revolving credit in which your home serves as collateral. Because the home is likely to be a consumer's largest asset, many homeowners use their credit lines only for major items such as education, home improvements, or medical bills and not for day-to-day expenses. With a home equity line, you will be approved for a specific amount of credit -- your credit limit -- meaning the maximum amount you can borrow at any one time while you have the plan. Many lenders set the credit limit on a home equity line by taking a percentage (say 75%) of the appraised value of the home and subtracting the balance owed on the existing mortgage.
    
    
  • For example:
    Appraisal of home $400,000
    Percentage x 75%
    Percentage of appraised value $300,000
    Less existing loan - $100,000
    Potential credit line = $200,000
    
    In determining your actual credit line, the lender will also consider your ability to repay by looking at your income, debts, and other financial obligations, as well as your credit history. Let your agent at Security Pacific refer you to a mortgage professional to help you with your choice of Home Equity Line of Credit.
    
    

Glossary of commonly used loan terms

What is an APR?
APR stands for annual percentage rate. It is the annualized cost of credit, expressed as a percentage. The APR calculation considers certain fees to reflect the cost of credit in addition to interest.

What is LTV?
LTV stands for loan-to-value, which is the ratio of the mortgage loan amount to the property's value. For example, if your property is worth $100,000 and $80,000 is owed on the first mortgage, the LTV ratio is 80.

What is CLTV?
The combined loan to value when you have a first and a second loan on your existing property or use a first and a second to aquire  a new property.

What is a Piggy Back loan?
A combination loan where the first loan is 80% of the sales price and the 2nd loan (Piggy back) can be 5% to 20% of the sales price.Pigy Back loans are used to eliminate the PMI and to creat leverage so that a buyer can obtain 100% financing if desired, and qualified.

What is PMI ?
Private mortgage insurance. Befor Piggy Bank loans lenders required insurance to insure the lender (not the buyer) against a default when a buyer put less than 20% of the sales price as a down payment.