mortgage loans

Balloon Mortgages:

• A lower fixed rate loan for those who expect to move or sale their home within a short time.
  
  
• A Balloon Mortgage means that your monthly payments are based on any fixed term up to 30 or 15 years amortization. At the end of the balloon period, your remaining mortgage loan amount will come due.
  
  
• Most lenders offer 3 and 5 and 7 year balloon periods with attractive low interest rates.
  
  
• Balloon mortgages are popular with people whose income is prone to fluctuate or who are not planning to stay in their home for more than 3, 5 or 7 years. It offers the security of a Fixed Rate Mortgage but with a lower rate.
  
  
• When you balance comes due, most lenders offer the option to refinance at a new rate and term or payoff your mortgage with your savings.
  
  Advantages / Disadvantages:
  
  
  • Balloon loans generally come with lower rates
    
    
  • But homebuyer run the risk of being in the home longer than the balloon period — thus forcing them to refinance (which could be be costly)
    
    
  • More attractive loans with similar rate advantages but with lower risk is the Hybrid 3/1, 5/1, 7/1 loans.

Pledge-Asset Mortgages:

• Referred to as asset-backed mortgages. Targeted to buyers with sufficient income who want to pledge their investments as collateral instead of a making a cash down payment.
  
  
• Pledged assets may include investments, CDs, mutual funds, stock portfolios, and investment property.
  
  
• Generally, pledged assets are maintained in a collateral account maintained by the lender.
  
  
• Pledged assets can be used for other family members, such as Zero-Down mortgage programs
  
  
• Pledged assets will remain as investment instruments, respectively gaining market value for the homeowner. However in most cases, the homeowner will not be able to sale or change the investment strategy without approval by the lender.
  
  
• Homeowners should calculate the investment difference between the higher interest rate charges for pledge-asset mortgages and the investment potential gain of the pledge asset.
  
  
• There are disadvantages. If the homeowner defaults on the mortgage, the lender gets both the pledged assets and the home.

Buydowns / Reductions:

Buydown Mortgages:

• These loans are temporary buydowns that initially start off with a discounted rate that gradually increases to an agreed-upon fixed rate.
  
  
• You will "buydown" the mortgage with an initial payment upfront to take advantage of lower monthly payments in the first few years. If you don't have the cash to buydown the mortgage, some lenders will forgo the fee for an higher interest rate.
  
  
• A common buydown product is the 2-1 buydown:
  
  Example: if the interest rate on the mortgage loan is 7%, the 2-1 buydown begins with an initial discounted rate at 5% in the first year, increases to 6% in the second year, and then levels off at 7% for the remaining term of the loan.
  
  You will need to prepay the payment differences between 5% and 7% for the first year; between 6% and 7% in the second year.
  

Graduated Payment Mortgages (GRMs):

• Often referred to as the Reduction Option Loan (ROL), or in some areas, the Reducing Interest Loan (RIL) or Mortgage (RIM).
  
  
• For a fee, the homeowner can adjust their current interest rate to a lower prevailing market rate. The homeowner generally pays some upfront points for this mortgage option.
  
  
• With this product, the homeowner can take advantage of lower interest rates without paying costs associated with refinancing when they choose to convert.
  

• GPMs usually start at low interest rates and then graduate up at predetermined times. Initial payments will be negatively amortized during the early years, then payments will rise as required to pay off the loan during the 15 or 30 year term.
  
  
• The advantage of GRMs allows buyers to finance a larger loan with expectations to pay higher monthly payments over the next 5 to 7 years before leveling off at a fixed payment for the remaining term of the loan.
  

For Those with Less-Than-Good Credit:

• Loans that do not meet the credit requirements of Fannie Mae and Freddie Mac are referred to as B, C and D paper loans.
  
  
• Loans of this type are made to applicants who have filed for bankruptcy, foreclosure and who generally have bad credit.
  
  
• These loans are temporary loans until the applicant can qualify for conforming "A" loans. The interest rate on B/C loans varies, but are generally higher than conforming "A" loans.
  
  
• There are number of "sub-prime" lenders that make B, C and D paper loans. However, you are not guaranteed approval. Each lender has their own criteria on approving applicants with less-than-good credit.
  
  
• Many of the loan products reviewed in this site are available for B, C and D loans. However, these loans may vary by lender and some restrictions may apply.
  
  
• Some applicants may choose to wait before submitting their mortgage application — this gives them time to clean up their credit report
  
  see our affiliated site for credit management guide
  
  
• We have a number of "sub-prime" lenders and brokers in our network that can assist you on your mortgage application.
  
  But first, check your credit report to correct any errors that can affect your credit rating.
  
  see our affiliated site for checking your credit report
  
  
  
• Note that both Fannie Mae and Freddie Mac are offering programs for A- type borrowers.
  
  These are individuals who don't have perfect "A" credit but are working to clean up their report.
  
  
• These are conforming "A-" loans that carry competitive interest rates that are lower than B, C and D paper.