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(770) 472-7533
Call Us Today!
(770) 472-7533

Loan Programs

Choosing a Loan Program

The right type of mortgage for you depends on many different factors.
There isn't a single or simple answer to this question. The right type of mortgage for you depends on many different factors:
  • Your Current Financial Picture
  • How You Expect Your Finances to Change
  • How Long You Intend To Keep Your House
  • How Comfortable You Are With Your Mortgage Payment Changing
For example, a 15-year fixed rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but your payments could get higher when the interest rate changes.
The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage professional.

Conventional Loans

Conventional loans are secured by government-sponsored entities such as Fannie Mae and Freddie Mac. Conventional loans can be made to purchase or refinance homes, single family to four family homes.
The Conforming Loan Limits are published annually by the Federal Housing Finance Agency (FHFA). Alaska, Hawaii, Guam and the U.S. Virgin Islands have loan limits that are 50% higher than the other contiguous states. Early in 2008, there were legislative changes that resulted in temporarily increases of the loan limits in certain high-cost areas in the contiguous United States. Here are a few websites to find additional information:
Jumbo loans are higher than the limits set by FHFA. They usually have a higher interest rate and some additional underwriting requirements. A strategy to lower your overall interest payment when your new balance is over the conforming limits is to use a combination of both a first and second mortgage. These are sometimes referred to as 80/10/10, 80/15/5, etc. Every situation is different but is one more option to consider.
In addition to common loan structures such as fixed rate and adjustable rate, Fannie Mae and Freddie Mac have other loan programs for low to no down payments, community lending and affordable housing initiatives, construction to permanent, home improvement and reverse mortgages.

Fixed Rate Mortgages

A loan program where your monthly principal and interest payments never change.
The most common type of mortgage program where your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally, your monthly payments will be very stable.
Fixed rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "biweekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.)
Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. The most common fixed rate loans are 15-year and 30-year mortgages.
During the early amortization period, a large percentage of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied to principal. A typical 30-year fixed rate mortgage takes 22.5 years of level payments to pay half of the original loan amount.

Adjustable Rate Mortgages (ARMs)

These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage and could allow you to buy a more expensive home.
However, the interest rate changes at specified intervals (for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also.
There are also mortgages that combine aspects of fixed and adjustable rate mortgages - starting at a low fixed rate for seven to ten years, for example, and then adjusting to market conditions. Ask your mortgage professional about these and other special kinds of mortgages that fit your specific financial situation.

Introductory Rate ARMs

In certain markets, Adjustable Rate Loans (ARMs) may offer a low introductory rate or start rate. This start rate is for a limited time. As a rule, the lower the start rate is the shorter the time before the loan makes its first adjustment.
The index of an ARM is the financial instrument that the loan is "tied" to, or adjusted to. The most common indices are the 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI). Each of these indices moves up or down based on conditions of the financial markets.
The margin is one of the most important aspects of ARMs because it is added to the Index. This will determine the interest rate you will pay. When the margin is added to the index, it is called the “fully indexed rate”. Margins on loans may range from 1.75% to 3.50%, for example.
Interim Caps
All adjustable rate loans carry interim caps. Many ARMs have interest rate caps of six months or a year. There are loans that have interest rate caps of three years. Interest rate caps are beneficial in rising interest rate markets, but can also keep your interest rate higher than the fully indexed rate if rates are falling rapidly.
Payment Caps
Some loans have payment caps instead of interest rate caps. These loans reduce payment shock in a rising interest rate market, but can also lead to deferred interest or "negative amortization.” These loans generally cap your annual payment increases to 7.5% of the previous payment.
Lifetime Caps
Almost all ARMs have a maximum interest rate or lifetime interest rate cap. The lifetime cap varies from company to company and loan to loan. Loans with low lifetime caps usually have higher margins, and the reverse is true. Those loans that carry low margins often have higher lifetime caps.

Standard ARMs and the Differences

Various types of adjustable rate mortgages.
A few options are available to fit your individual needs and your risk tolerance with the various market instruments.
ARMs with different indexes are available for both purchases and refinances. Choosing an ARM with an index that reacts quickly lets you take full advantage of falling interest rates. An index that lags behind the market lets you take advantage of lower rates after market rates have started to adjust upward.
The interest rate and monthly payment can change based on adjustments to the index rate.
6-Month Certificate of Deposit (CD) ARM
This program has a maximum interest rate adjustment of 1% every six months. The 6-month Certificate of Deposit (CD) index is generally considered to react quickly to changes in the market.
1-Year Treasury Spot ARM
This program has a maximum interest rate adjustment of 2% every 12 months. The 1-Year Treasury Spot index generally reacts more slowly than the CD index, but more quickly than the Treasury Average Index.
6-Month Treasury Average ARM
This program has a maximum interest rate adjustment of 1% every six months. The Treasury Average Index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators.
12-Month Treasury Average ARM
This program has a maximum interest rate adjustment of 2% every 12 months. The Treasury Average Index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators.

Cost of Funds Index (COFI)

This index is used to determine the interest rate for some types of ARMs.
The 11th District Cost of Funds is more prevalent in the West and the 1-Year Treasury Security is more prevalent in the East. Buyers prefer the slowly moving 11th District Cost of Funds and investors prefer the 1-Year Treasury Security.
The monthly weighted average 11th District has been published by the Federal Home Loan Bank of San Francisco since August 1981. Currently, more than one-half of the savings institutions loans made in California are tied to the 11th District Cost of Funds (COFI) index.
The Federal Home Loan Bank's 11th District is comprised of saving institutions in Arizona, California, and Nevada.
Few people who use and follow the 11th District Cost of Funds understand exactly how it is calculated, what it represents, how it moves and what factors affect it.
The predecessor to the 11th District Cost of Funds Index was the District semiannual weighted average cost of funds published for a six-month period ending in June and December. The San Francisco Bank was the first Federal Home Loan Bank to publish a monthly cost of funds index.
The funds used as a basis for the calculation of the 11th District Cost of Funds Index are the liabilities at the District savings institutions: money on deposit at the institutions, money borrowed from a Federal Home Loan Bank (known as advances) and all other money borrowed. The interest paid on these types of funds is the cost of these funds.
The ratio of the dollar amount paid in interest during the month of the average dollar amount of the funds for that month constitutes the weighted average cost of funds ratio for that month.
The average cost of funds is said to be weighted because the three kinds of funds and their costs are added together before a ratio is computed rather than calculating averages individually for the three sources and using a simple average of the three ratios. This gives the greatest weight to the interest paid on deposits and explains the delayed reaction of the index to rising fixed rate mortgages.

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    Home Loan Pros, Inc.
    2011 Commerce Dr N
    Peachtree City, GA 30269
    Phone Number: (770) 472-7533
    In Business Since 1983

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