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Loan Program Options

by Nancy Osborne, COO of ERATE®

• Fixed Rate Mortgage
• Fixed Rate Balloon Mortgage
• Intermediate ARM's
• Traditional ARM's
• Second Mortgages
• Equity Line

Fixed Rate Mortgage

• • 30 Year Fixed Rate
    The interest rate is fixed for 30 years and the mortgage is fully amortized (or paid off) in 30 years if the normal payment schedule is followed.

• • 20 Year Fixed Rate
    The interest rate is fixed for 20 years and the mortgage is fully amortized (or paid off) in 20 years if the normal payment schedule is followed.

• • 15 Year Fixed Rate
    The interest rate is fixed for 15 years and the loan is fully amortized (or paid off) in 15 years if the normal payment schedule is followed.

• • 10 Year Fixed Rate
    The interest rate is fixed for 10 years and the loan is fully amortized (or paid off) in 10 years if the normal payment schedule is followed.

• • 10 Year Fixed Rate see intermediate ARM's

• • 7 Year Fixed Rate see intermediate ARM's

• • 5 Year Fixed Rate see intermediate ARM's

• 3 Year Fixed Rate see intermediate ARM's

Fixed Rate Balloon Mortgage

• 7/23 Conforming Mortgage
  The rate is fixed for a period of 7 years and then converts to a new fixed rate for the remaining 23 years. The new rate is typically based on the Fannie Mae net yield indexand is added to a pre-determined margin. Note that converting to this new rate is permitted only if the prescribed conditions are met and if not, then the loan is due and payable to the lender as a balloon loan (review your loan documents carefully). The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed.

• 5/25 Conforming Mortgage
  The rate is fixed for a period of 5 years and then converts to a new fixed rate for the remaining 25 years. The new rate is typically based on the Fannie Mae net yield index and is added to a pre-determined margin. Note that converting to this new rate is permitted only if the prescribed conditions are met and if not, then the loan is due and payable to the lender as a balloon loan (review your loan documents carefully). The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed.

• 30/15 (30 due in 15)
  The rate is fixed for a 15 years and the payment is amortized over 30 years to provide for a lower monthly payment. This loan is due and payable as a balloon loan at the end of 15 years.

Intermediate ARM's
Anatomy of an Adjustable Rate (ARM)

• • 10/1 ARM
    The rate is fixed for a period of 10 years after which in the 11th year the loan becomes an adjustable rate. The adjustable is tied to the 1-year treasury index and is added to a pre-determined margin (usually between 2.25-3.0%) to arrive at your new monthly rate. Ask what the margin, life cap and periodic caps of your ARM will be in the 11th year. The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed. (Also see anatomy of an ARM for additional information).

• • 7/1 ARM
    The rate is fixed for a period of 7 years after which in the 8th year the loan becomes an adjustable rate. The adjustable is tied to the 1-year treasury index and is added to a pre-determined margin (usually between 2.25-3.0%) to arrive at your new monthly rate. Ask what the margin, life cap and periodic caps of your ARM will be in the 8th year. The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed. (Also see anatomy of an ARM for additional information).

• • 5/1 ARM
    The rate is fixed for a period of 5 years after which in the 6th year the loan becomes an adjustable rate. The adjustable is tied to the 1-year treasury index and is added to a pre-determined margin (usually between 2.25-3.0%) to arrive at your new monthly rate. Ask what the margin, life cap and periodic caps of your ARM will be in the 6th year. The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed. (Also see anatomy of an ARM for additional information).

• 3/1 ARM
  The rate is fixed for a period of 3 years after which in the 4th year the loan becomes an adjustable rate. The adjustable is tied to the 1-year treasury index and is added to a pre-determined margin (usually between 2.25-3.0%) to arrive at your new monthly rate. Ask what the margin, life cap and periodic caps of your ARM will be in the 4h year. The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed. (Also see anatomy of an ARM for additional information).

Traditional ARM's
Anatomy of an Adjustable Rate (ARM)

• • 1 Year Treasury ARM (1 YR T-Bill)
    The rate is fixed for 1 year (this initial rate is sometimes referred to as the teaser or start rate) after which in the 2nd year the rate will adjust based on the 1-year treasury index which is added to a pre-determined margin (typically ranging from 2.25-3.00%) to arrive at the new annual rate. Ask what the margin, life cap and periodic payment caps of your ARM will be. The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed. (Also see anatomy of an ARM for additional information).

• • 1 Year Treasury Average ARM
    The rate is fixed for 1 year (this initial rate is sometimes referred to as the teaser or start rate) after which in the 2nd year the rate will adjust based on the 1-year treasury average index which is added to a pre-determined margin (typically ranging between 2.25-3.00%) to arrive at the new annual rate. Ask what the margin, life cap and periodic payment caps of your ARM will be. The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed. (Also see anatomy of an ARM for additional information).

• • Monthly Treasury Average ARM (MTA)
    The rate is fixed for a 3 month period (this initial rate is sometimes referred to as the teaser or start rate) after which your rate is based on the monthly treasury average index which is added to a pre-determined margin (typically ranging between 2.25-3.00%) to arrive at the new monthly rate. This loan may also have periodic payment caps as well as interest rate caps, and therefore could have the potential for negative amortization. Ask what the margin, life cap and periodic caps of your ARM will be. (Also see anatomy of an ARM for additional information).

• • COFI ARM (Cost of Funds)
    The rate is fixed for a 3 month period (this initial rate is sometimes referred to as the teaser or start rate) after which your rate is based on the 11th district cost of funds index (COFI) which is added to a pre-determined margin (typically ranging between 2.25-3.00%) to arrive at the new monthly rate. This loan may also have periodic payment caps and therefore the potential for negative amortization. Ask what the margin, life cap and periodic caps of your ARM will be. (Also see anatomy of an ARM for additional information).

• • 6 Month CD ARM
    The rate is fixed for 6 months (this initial rate is sometimes referred to as the teaser or start rate) after which in the 7th month the rate will adjust based on the 6-month CD index which is added to a pre-determined margin (typically ranging from 2.25-3.00%) to arrive at the new semi-annual rate. Ask what the margin, life cap and periodic payment caps of your ARM will be. The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed. (Also see anatomy of an ARM for additional information).

• • LIBOR ARM (London Interbank Offer Rate)
    The rate is fixed for 6 months (this initial rate is sometimes referred to as the teaser or start rate) after which in the 7th month the rate will adjust based on the 6-month LIBOR index which is added to a pre-determined margin (typically ranging from 2.25-3.00%) to arrive at the new semi-annual rate. Ask what the margin, life cap and periodic payment caps of your ARM will be. The loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed. (Also see anatomy of an ARM for additional information).

• New Adjustable Rate Mortgage
  Option ARM - 1 Month Option Adjustable Rate Mortgage
  
  

Second Mortgages

• • 30 Year Fixed Rate
    The interest rate is fixed for 30 years and the loan is fully amortized (or paid off) in 30 years if the normal payment schedule is followed.

• • 15 Year Fixed Rate
    The interest rate is fixed for 15 years and the loan is fully amortized (or paid off) in 15 years if the normal payment schedule is followed.

• • 30/15 (30 due in 15)
    The rate is fixed for a 15 years and the payment is amortized over 30 years to provide for a lower monthly payment. This loan is due and payable as a balloon loan at the end of 15 years.

Equity Lines

• • Prime Rate
    A Home Equity line of credit with a loan term ranging from 15 to 25 years. The rate is based on the prevailing prime rate, which is added to a fixed margin (typically ranging from 0 to 4%) depending upon a borrower's individual credit and equity. The line of credit offers check-writing privileges and interest is paid only on the funds drawn from the account. A draw period exists from which a borrower may access the funds after which the repayment period begins so that the equity line is fully paid at the end of the term.

To further enrich the article with insights into loan program options, it’s beneficial to highlight the versatility and adaptability of these loan structures to meet diverse financial needs and goals. Emphasizing the importance of understanding each loan type's specific terms, conditions, and potential impacts on one’s financial future can guide consumers in making informed decisions.

Additionally, acknowledging the evolving landscape of mortgage products and the importance of staying informed about changes in interest rates, market conditions, and regulatory environments can equip borrowers with the knowledge to choose the most suitable loan option. For detailed comparisons and guidance, consulting with a financial advisor or mortgage professional is recommended.

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Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.

"I am addicted to Bloomberg TV" says Nancy.