Fixed Rate: A fixed rate mortgage has a rate that will never change as long as you have a balance on the mortgage. It is usually fully amortized, which means if you make every payment on time, you will pay it off in a set amount of years. A fixed rate is the most popular type of mortgage because the borrower knows month after month what the payment will be.

Adjustable Rate Mortgage (ARM):  An adjustable rate mortgage bears an interest rate that can (and will) move up and down over the course of the loan. Its movement is based upon a margin (which is a fixed percentage) and an index (which moves with the market conditions and causes the rate to adjust). An adjustable rate mortgage generally has a lower beginning rate, but will start to adjust after six months or a year.

Intermediate:  An intermediate mortgage is a hybrid between fixed and adjustable. The interest rate is fixed for a period of time and then begins to adjust after the fixed period expires.

30-Year Fixed:  The 30-Year Fixed Rate Loan is the most popular choice. This is a loan with a term of 30 years. It generally offers the lowest payment available for a fixed rate loan. This is a popular choice due to the ability of a borrower to lock in today's relatively low interest rates without the risk of the rate rising later on. 30-Year fixed rate loans are a good choice for individuals who want to keep their payments low and who plan on keeping their mortgage over 7 years. Other options similar to the 30 year fixed rate mortgage are the 20-Year fixed rate and the 15-Year fixed rate. Each of these programs pay off your mortgage in a shorter period of time, but also raise your payment (roughly 15% on the 20 year and 30% on the 15-Year when compared to the 30-Year payment.) In addition to the obvious benefit of paying the mortgage off sooner and generally lower interest rates, if you can afford the higher payment, these shorter term mortgages will reduce the amount of interest paid over the life of the loan.

Seven Year Balloon:  A Seven Year Balloon loan is excellent for those who want a fixed rate but also want a payment that is lower than a 30-Year fixed rate mortgage. These loans are amortized for 30 years but come "due" at the end of the seventh year. To most this is a scary thought, but they usually also have an "extension clause" whereby the borrower may extend the loan for the remainder of the 30 year term at current market rates plus an interest rate mark-up, generally 0.75%. This type of loan usually carries an interest rate up to 0.50% better than 30-Year fixed rates. Many people choose this loan in anticipation of either not staying in the home more than seven years or seeing lower rates in the near future. Another similar option is the five-year balloon, which acts just like the seven except it is for five years and is usually not extendible.

2 or 3-Year Fixed:  The 2 or 3-Year Fixed loan is a hybrid between the 30-Year fixed and the 1-Year ARM. It remains fixed for two or three years and then turns into an adjustable rate mortgage. This is a good loan for borrowers who plan to stay in their home anywhere from 1 to 5 years or for those who have plans to refinance within a short time. It generally has a lower interest rate than a traditional 30-Year fixed rate loan but will adjust after the fixed period.

1-Year ARM:  A 1-Year ARM is an Adjustable Rate Mortgage that will remain fixed for one year but then will adjust due to its index and margin. This loan is good for individuals who plan on being in their home less than 3 years or for those who just want the lowest payment possible for the first few years of the loan (maybe hoping for lower fixed rates in the near future?). 1-Year ARMs do carry a degree of risk, however. After the first year, the interest rate and payment will almost assuredly rise.

Full Documentation:  A full documentation loan is where the person uses third party information such as W-2's or paystubs to verify income. Self-Employed individuals will need to provide their last two years tax returns and a current year-to-date profit and loss in order to prove income. Fully proving your income will get you the lowest rate possible.

Bank Statements:  Certain loans allow bank statements to be used to prove income. This is done by adding up the deposits made during the last 12 to 24 months. Generally, a client may only use personal bank statements and only one account. This is a good loan for those who deposit income consistently but are unable to prove the income through tax returns, W-2s or other means.

Stated Income:  Individuals unable or unwilling to prove their income are allowed to state their income without having to prove it. This type of loan generally requires a larger down payment (or lower loan-to-value ratio, if refinancing) and carries a slightly higher interest rate than full documentation loans. It is generally a loan for self employed borrowers who have been in business for 2 years or more, but there are programs for employed borrowers as well.

No Ratio:  The no ratio loan is for those who do not want to either state nor prove their income. The income portion on the application is left blank on No Ratio Loans. Generally the borrower needs good credit and still must be employed in the same line of work for the past two years. The rate is comparable to a stated income loan, but debt-to-income ratios (the amount of debt divided by the amount of income) are never considered. This is a great loan for those who are uncomfortable about stating their income but still need to do a "No Income Qualifying" loan.

No Doc:  A No Doc loan doesn't require any type of documentation for income nor assets. All references to employment and assets are left blank on the application. However, this type of loan has stringent requirements, generally requiring perfect credit. In addition, the property may require owner occupancy and/or a minimum of 10% down payment. This is also a good loan for those with a large gift from another individual; since deposits are not verified, it does not matter from where the down payment comes.

Conventional:  Conventional financing is the most popular home mortgage because it carries the most favorable terms and rates. A good credit history and stable employment is required for conventional financing. Fannie Mae and Freddie Mac, the two agencies that make the rules behind conventional loans, have made large strides in providing low to no down payment loans. Most borrowers today are able to secure conventional financing. All conventional loans require full income documentation.

FHA:  FHA is a government-backed loan that is great for first time homebuyers or for borrowers not quite meeting conventional guidelines. FHA loans generally require little down payment and allow the entire down payment to be a gift from a close relative. All FHA loans require full income documentation.

Expanded Elite:  This loan is for those who have good credit but for some reason are not able to secure conventional financing. Stated Income, No Ratio and No Doc loans fall under this category as do loans over the conventional limits (>$275K).

Extended:  Extended Credit loans are for those whose credit rating just miss the Fannie Mae or Freddie Mac requirements. These loans have higher rates than conventional but they still offer relatively low down payments and will accommodate those who need to state their income.

Sub-Prime:  Sub-Prime loans are for those who have had some credit difficulties in the near past. These loans carry a higher interest rate but still allow borrowers to meet their mortgage needs. These loans can also provide solutions for high loan-to-value cash out refinances and other "non-conforming" loans.

Investment:  A property purchased with the intention of gaining rental income is investment property. Investment property can be acquired with as little as 5% down for a single-family rental but most loans require 10% or more. The rate is generally 0.75 to 1% higher than owner occupied properties.

Owner Occupied:  If the borrowers will live in the property, it is owner occupied. Owner occupied loans carry the best terms available with the lowest down payments and interest rates. According to most notes, the property must be owner occupied for one year before it can be rented out.

Second Home:  If the borrower is looking to purchase or refinance a vacation property it is termed a second home. A second home differs from investment property in that the borrower must occupy the home at least two weeks in a year period and can not derive rental income from it.

It is important to realize that combining these loan characteristics will give you the perfect mortgage for your situation. If you have any questions, please ask your REALTOR™ or call (801) 456-3820 for assistance.