Mortgage Loan Options

When I first began working with mortgage loans, I was perplexed as to how many components there are to a mortgage loan. My grandparents conveyed a 30 yr. fixed was a solid loan and they assumed adjustable loans were not suitable and had no merit. Being the conservative financial consultant I was at the time, I sold 30 yr. fixed loans night and day.

As I began to peel away the layers of mortgage lending during the recent historically low period for the Prime Rate from late 2001 to present, I started to understand Adjustable Rate Mortgages and Interest-Only Loans and how they contributed to assisting borrowers accomplish the dream of home ownership. Let's break three different types of mortgage loans down and analyze the differences:

1) 30 yr. Fixed Mortgage-This mortgage loan if fully amortized for 30 years. From the monthly payment, a portion is applied to the principal balance and the remainder to interest. This is a common loan for FHA, HUD and many First Time Home buyer Programs. If the loan is 100% financed, Private Mortgage Insurance may be added in addition to the payment or factored in to the interest rate. A solid loan with a rate that does not change. Typically, without making any additional payments to principal it will take several years before more of your monthly payment is applied to principal to assist in paying down the balance. If you do not plan on living in the property 30 years or retaining the property as an investment, an alternative mortgage option may be applicable.

2) 5/1 Fixed-Adjustable Rate Mortgage-This mortgage loan interest rate is fixed for 5 years and may adjust annually thereafter. There is usually a margin and a life time cap associated with this loan. The margin measures how much the rate with change annually and the lifetime cap provides a ceiling or a maximum to the interest rate change. The interest rates for this loan may be lower than a 30 yr. Fixed. If your purchase of real estate is short term this may be a suitable loan. Historically speaking, real estate has continued to generate favorable returns over the long haul.

3) 30 yr. Fixed with 10 year Interest Only Option-This mortgage loan interest rate is fixed for 30 years with the first ten years of optional Interest Only. If a Second Mortgage Loan is in place and the payments are fully amortized, by taking the amount you would have paid on a traditional 30 yr. Fixed and applying that difference to the second mortgage, the second will be paid off significantly faster. Once the second mortgage is paid in full, you can take those payments and apply them to principal on your primary mortgage, this will in turn assist at paying down your mortgage loan in less time. Most mortgage lenders have access to calculating this information based on your scenario. I provide this mortgage calculation to my clients and show them how to save money over the life of their loan.

These three mortgage loan options are offered by several lenders and are not always available to all borrowers. There are specific criteria in place to qualify which may include; credit scores, income documentation, asset documentation, and amount financed to name a few.

I am available for a free consultation and can be reached via my blog, email: tiana.uribe@trufinancialservices.com or 1 (877) TRU-3855 Ext. 401. Thanks for reading and until next time, "Let no feeling of discouragement prey upon you, and in the end you are sure to succeed."-Abraham Lincoln.