Mortgage Loan Products
Fixed- Fixed-rate mortgage with escrow
Many borrowers choose to escrow their taxes and insurance. To escrow, the lender divides the amount of the borrower's taxes and insurance by 12 and adds it to the monthly payment. The lender pays the taxes and insurance when they become due.
Fundamentals of Construction Mortgages - Required payments on a construction loan
Payments sometimes start on a construction loan six (6) to twenty-four (24) months after the loan is made. The borrower can pay the loan off in a lump sum or convert the loan to a conventional mortgage loan.After the construction is complete, the borrower refinances the temporary loan, typically into a more traditional loan with a competitive interest rate.
Fundamentals of Construction Mortgages - Classifying the disclosure of financing by the same creditor when constructing a home
The 2017 TILA-RESPA Rule provides that if the creditor discloses a construction-permanent loan as two separate transactions, the creditor must allocate to the construction phase amounts for finance charges and points and fees that would not be imposed but for the construction financing. For example, inspection and handling fees for the staged disbursement of construction loan proceeds must be included in the disclosures for the construction phase and may not be included in the disclosures for the permanent phase. Fees that are not finance charges or points and fees may be allocated between the construction phase and permanent phase in any manner the creditor chooses.
Adjustable- Factors when determining interest rates
To set the interest rate on an ARM, lenders add a few percentage points to the index rate, called the margin. The amount of the margin may differ from one lender to another, but it is constant over the life of the loan.Some lenders base the amount of the margin on your credit score, the better your credit the lower the margin they add, and the lower the interest you will have to pay on your mortgage.
Reverse Mortgage - Age requirements for conversion mortgages
he basic things about a reverse mortgage are:- The borrower must be at least 62 years old, and- Have a principal residence that is either paid off, or- Have a low mortgage balance can be paid off at settlement with the proceeds from the reverse loan.- Mandatory counseling before they can apply.- Negative amortization- No escrows for taxes and insurances.
Home Equity Line of Credit (HELOC) Examples of open-ended credit loans
A Home Equity Line of Credit or a HELOC is a type of revolving loan that enables a homeowner to obtain multiple advances of the loan proceeds at his or her discretion, up to an amount that represents a specified percentage of the borrower's equity in their property.A Home Equity Line of Credit is kind of like having a credit card on the borrower's home. It is an open-ended loan that allows the borrower to take money out of their home to do other things with it. A lot of borrowers use HELOCs for home improvement projects around their home. The borrower must have equity already built in their home to qualify for a HELOC.A HELOC works like this: A borrower owes a small amount of money on their home, say $50,000, but their home is worth $150,000. The borrower can take a HELOC out on their home and have access to some of that $100,000 in equity. They can use that $100,000 for anything they want. A HELOC generally does not allow the borrower to take 100 percent of the equity out of the property. It usually allows around 80 percent of the equity, which leaves the borrower at least 20 percent equity in the property.
Balloon Mortgage Loan Products - Scenarios to determine when a balloon loan may be appropriate for a borrower
A balloon loan is one that has a normal monthly payment (usually based on a 30-year amortization schedule) initially, then the entire loan becomes due in one final payment.An example is a $200,000 loan with an interest rate of 3 percent and a monthly payment of $843 for the first seven years. After seven years, a final payment of $168,000 is due. Balloon loans are attractive because the rates are typically lower than for most other types of traditional mortgages. The dilemma is how to handle this last payment. Some loans have reset options, but most require this final lump sum payment.This type of loan could work for someone who knows he or she will soon be selling a house or someone who is expecting his or her income to increase significantly over time. It could also work for someone with low credit scores now who wants to refinance again when his or her credit scores improve.
Balloon Mortgage Loan Products - Facts about balloon mortgages
A balloon payment is a larger-than-usual one-time payment at the end of the loan term. A balloon mortgage is a mortgage in which a large portion of the loan is due in one large payment at the end of the loan.A balloon mortgage does not have a fixed payment for the life of the loan like a fixed rate mortgage. It is also similar to an adjustable rate mortgage (ARM) in that there is an initial period during which the rate and payment are predictable. For example, with a balloon mortgage, for the first 3, 5, or 7 years, the payment can be fixed, typically calculated on a 30-year amortization schedule with a fixed rate. During this initial period, however, some lenders might also allow interest-only payments or some other arrangement that keeps the payment low. When this initial period ends, the remaining balance of the loan is due in one final payment. Obviously, this final payment will be large compared to the monthly payments preceding it. Balloon mortgages are much less popular today than there were before the subprime mortgage crisis but still appropriate in limited circumstances.
Adjustable - Fully indexed rate scenarios
A drop in interest rates does not always lead to a drop in your monthly payments. With some ARMs that have interest-rate caps, the cap may hold your rate and payment below what it would have been if the change in the index rate had been fully applied. The increase in the interest that was not imposed because of the rate cap might carry over to future rate adjustments. This is called carryover. So at the next adjustment date your payment might increase even though the index rate has stayed the same or decreased.In general, the rate on your loan can go up on any scheduled adjustment date when the lender's standard ARM rate (the index plus margin) is higher than the rate you are paying before the adjustment
Graduated Payment Loans
A graduated-payment mortgage (GPM) is a mortgage that has a low initial monthly payment that gradually increases over a specified time frame designated at the time of origination. A GPM uses negative amortization to allow the borrower to have an initially discounted monthly payment. GPM's typically require a larger than usual down payment. The purpose of a GPM is to allow a borrower with limited income that can document a likely future increase in income to buy a house sooner by starting with a smaller house payment that increases over time. The borrower would be qualified if they were making the full payment.Ex. a borrower receives a $100,000 loan. Heselects a graduated-payment mortgage and initially paysonly $200 a month toward his mortgage. That $200 onlycovers a portion of the $600 of interest that accrues on theloan every month. That additional $400 a month is addedback to the principal balance. So, while the borrower tookout a mortgage for $100,000, the principal loan amount is growing as opposed to going down with each monthlypayment. So, at the end of the year, the principal loanamount has gone up by $4,800. Meaning he now owes$104,800 on his mortgage, even though he paid $2,400 that year.
Fundamentals of Construction Mortgages - Definition of "construction loan"
A mortgage used to finance a construction project.A construction loan provides temporary funding to build a home. A builder or a homebuyer obtains this type of loan through the build then seeks permanent financing once the home is completed. Because construction loans are seen as riskier, the rates are higher, and some banks do not offer them.
Purchase Money Second Mortgages
A purchase money mortgage is a mortgage offered by the seller of a home. As part of the deal, the seller takes the place of the bank, setting the terms of the mortgage. This type of loan is often referred to as seller financing.A purchase money second mortgage is often used in conjunction with traditional mortgages to help buyers avoid paying mortgage insurance. The loan basically takes the place of a down payment when the borrower chooses to pay less down or cannot afford a larger down payment.Sometimes referred to as a piggyback loan, the financing in this scenario looks something like this: a primary mortgage covering 80 percent of the purchase price, a second mortgage covering 10 percent of the purchase price, along with a 10 percent down payment. Technically, having the first mortgage at 80 percent allows the homeowner to get to the 20 percent equity threshold needed to avoid paying mortgage insurance.The main reason for this type of loan so MI does not have to be on the loani.e. 80/15/5 or 80/10/10- 80 means the LTV on the first lien, thus no MI- 15 or 10 = the amount of the second mortgage- 10 or 5 = the amount of the verified assets for down payment
Reverse Mortgage - Facts on reverse mortgages
A reverse mortgage is a type of home equity loan. The most common type of reverse mortgage is the FHA Home Equity Conversion Mortgage or HECM.A HECM is a particular type of mortgage/home equity loan developed and insured by the Federal Housing Administration (FHA) that enables older homeowners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needsReverse mortgages take the equity that has accumulated over time in an elderly borrower's home and pays it back to them through either installment payments, line of credit, or in a lump sum. The basic things about a reverse mortgage are:- The borrower must be at least 62 years old, and- Have a principal residence that is either paid off, or- Have a low mortgage balance can be paid off at settlement with the proceeds from the reverse loan.- Mandatory counseling before they can apply.- Negative amortization- No escrows for taxes and insurances.There is also a Reverse for Purchase HECM loan available for borrowers who may put a sizeable down payment and do not have a required monthly mortgage payment.Reverse Mortgages (HECMs) allow borrowers 62 and older to use the equity in their home to help them meet their living expenses or supplement their income. The loan results in negative amortizationNEG AM: Mortgage balance goes up every month because the interest is not paid (no payments required) and the amount that is paid to the borrower each month
Fundamentals of Construction Mortgages
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.Construction Loan with a Permanent Take Out: The consumer obtains a construction loan from a lender. The construction lender will request a permanent take out before making the construction loan. Your company will take an application and process as a new loan, if approved a commitment letter will be issued to the borrower. When the construction is done, if the borrower meets the requirements of the commitment letter, your company will pay off the construction loan and the borrower starts making payments on the permanent loan.A construction loan generally has higher interest rates than longer-term mortgage loans used to purchase homes. The money borrowed through a construction loan is provided in a series of advances as the construction progresses.Often the builder requires the temporary loan to be paid off by the time the home is completed. Construction loans can be obtained to build new homes from the ground up and also to rehabilitate existing homes.For example, the loan pays out $50,000 for the initial foundation work. A month later, another $50,000 for the framing of the house, another $20,000 for the drywall, $10,000 for plumbing, and $17,000 for the electrical work are issued. The borrower must pay interest at the end of each month on the amount that has been drawn on the loan. The construction loan is complete when the house is finished. The borrower goes to the lender that committed on the permanent loan and pay off the construction loan.
Adjustable - Facts on ARM loans
ARMs start with an initial rate and payment. The initial rate and payment amount on an ARM remain in effect for a limited period. That limited period can range from one (1) month to several years. With most ARMs, the interest rate and monthly payment can change every month, quarter, year, three (3) years, or five (5) years. The period between rate changes is called the adjustment period. Some examples include: an ARM that has an adjustment period of one (1) year is called a one-year ARM, and the interest rate and payment can change once every year. An ARM with a three-year adjustment period is called a three-year ARM, and the interest rate can adjust every three (3) years.There are many types of adjustable rate mortgages (ARMs). The most common are 3/1, 5/1, or 7/1 ARMs. The first number refers to the number of years the rate initially remains locked. The second number refers to how often the rate can reset after the initial locked period. For a 3/1 ARM, the rate remains locked for the first three years then resets every year thereafter.
Adjustable - Timeline for notifying a customer of a rate change
Adjustable rate mortgages typically have a period of time in the beginning when the rate and payment are fixed, usually for the first 3, 5, or 7 years. After this initial period the rate will normally adjust annually.The first time the rate changes, the lender must notify the borrower seven to eight months (at least 210 days, but not more than 240 days) before the first payment at the new rate is due.All subsequent rate change notices must be provided to the borrower two to four months (at least 60 days, but no more than 120 days) before the payment at the new rate is due.The advance notice is designed to give borrowers a chance to adjust to the new payment or refinance their mortgages. The first notice must include options to explore if the borrower cannot afford the new payment and information on how to contact a Housing and Urban Development (HUD)approved mortgage counselor. The subsequent notices must show the current rate and the new rate, the current payment and the new payment, and the date the new payment is due.
Reverse Mortgage - Requirements of reverse mortgage advertisements
Advertisements for reverse mortgages must meet certain federal regulations. The use of Housing and Urban Development (HUD) or Federal Housing Administration (FHA) names, seals, or logos isprohibited. Ads cannot mislead or deceive (i.e. claiming consumers cannot lose their homes). The regulations require specific disclaimers and record retention and also impose sanctions. Using HUD or FHA names, seals or logos could indicate to borrowers that the reverse mortgage program is a federal program or endorsed by the federal government, which would be misleading or false. Lenders must fully explain reverse mortgages in plain language. Lenders must issue a disclaimer saying that the HUD or FHA does not distribute or approve the advertising materials. Advertisers are prohibited from saying that any federal organizations endorse or are affiliated with their products. All advertising materials must be retained for two years. Advertisers who violate federal regulations can be sanctioned, fined, or subject to administrative actions.
Adjustable - Scenarios resulting in a change in monthly payments
All ARMs have an introductory rate period during which the rate is fixed. After this stage, the rate begins to adjust, and the payment will change as well.ex. Program - 3/1 ARM, monthly payment/interest rate fixed for 3 years and then adjusts every year thereafter
Reverse Mortgage - Payments required after closing on a conversion mortgage loan
Although they won't make monthly mortgage payments, they will need to continue to pay property taxes, homeowner's insurance, and property maintenance.Typically, reverse mortgages do not require the borrower to make any monthly payments until the borrower dies, sells the home, or moves out permanently.There are only some costs that are allowable on a HECM transaction. The costs include mortgage insurance premiums - because this is an FHA program, there are mortgage insurance premiums.Servicers (who are servicing the HECM) can charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate or has a fixed interest rate. They can also charge a monthly servicing fee of no more than $35 if the interest rate adjusts monthlyNo escrows included in the payment. The borrower is responsible to pay their taxes and insurance
Adjustable - Payment options for an ARM
An adjustable-rate mortgage or ARM, also sometimes referred to as a variable rate mortgage, is a mortgage loan where the interest rate periodically adjusts. The index, margin, and adjustment caps on the ARM determine the amount of each adjustment.ARMs are the second most common product in the mortgage industry. They differ from fixed- rate mortgages in many ways. The most important difference from a fixed rate is the interest rate on an ARM fluctuates. For this reason, a lender will often charge lower interest rates on ARMs than on a fixed rate product. At first, the ARM has less expensive payments because of that lower interest rate; it can also be less expensive over a more extended period than a fixed-rate mortgage if interest rates remain steady or move lower. However, there is a downside to ARMs because if interest rates increase and that ARM adjusts its interest rate, then the borrower's payment will increase along with the rate.
Adjustable - Definition of "fully indexed rate"
An interest rate charged on loans to borrowers that is calculated by taking the sum of a benchmark index and a specified margin. The indexed rate is used to calculate the interest rate on an ARM.Addition of the Index and the Margin (index + margin = interest rate)At the time of an adjustment, the lender will add the current index number (this depends on the loans assigned index) plus the margin.The borrower is underwritten at the higher of the starting interest rate or the Fully Indexed Rate. The MLO must show that the borrower has the ability to repay the loan at the highest possible interest rate. If the initial rate on the loan is less than the fully indexed rate, it is called a discounted index rate (must qualify for the higher rate still).
Adjustable - Facts on margin with respect to ARMs
An interest rate on an ARM has two parts: the index and the margin (fully indexed rate).The margin is the profit the lender adds.The margin is assigned at the loan origination and always stays the same. The only number on an ARM that cannot change. It is also the floor, meaning the interest rate cannot go below the margin.
Other Mortgage Products
Bridge Loans Graduated Payment Loans
Adjustable- Scenarios reflecting payments increasing/decreasing on "change date"
Ex. on a 1-year ARM with a margin of 1.25 percent and at the time of adjustment, it's index (the LIBOR) is at .50 percent. If you add the two together, the new interest rate on the ARM is 1.75 percent. This percent is called the fully indexed rate.Ex. For example, a borrower has an initial interest rate of 2.25 percent. The margin is 1.25 percent, and the index is the COFI. The ARM has 2/2/8 interest rate caps. The COFI, at its first adjustment, is at .50 per- cent. The COFI, at its second adjustment, is .75 percent.The margin is always going to be 1.25 percent, but the COFI is showing at the first adjustment that it is at .50 percent. The two numbers then need to be added together. 1.25 percent + .50 percent = 1.75 percent.- 1.75 is the fully indexed rate at the first adjustment. On the first adjustment, the interest rate cannot go up more than 2 percent. In this situation, we are good; the interest rate only adjusted .50 percent and is now lower than the initial interest rate. If the new fully indexed rate had exceeded 4.25 percent, then we would have run into the cap. In that situation, the interest rate would stay at 4.25 percent and not go over that capped amount.- On the second adjustment, we know the fully indexed rate is 2 percent (index + margin). The subsequent adjustment cap is still 2 percent. (Present interest of 2% plus the 2% adjustment cap of 2% = 4.0 cap) Meaning that if the interest rate had exceeded 4.00 percent, then the cap would have kicked in, and the interest rate on the ARM would have been 4.00 percent.- The lifetime cap would only come into play if the new fully indexed rate on any adjustment exceeded the initial interest rate plus the lifetime cap in this situation that would be 2.25%+8% = 10.25%, is the highest the interest rate can go over the life of the loan.
Balloon Mortgage Loan - Lender requirements
For an MLO to be sure they are not steering and meet the requirements of the LO Compensation Rule the MLO must show that he loan options presented to the consumer include the following: The lowest rate the consumer qualifies for a loan with no risky features, such as a prepayment penalty, negative amortization, or a balloon payment in the first seven years.On page one of the LE in Loan Terms: The lender is required to disclose the basics of the loan, including a balloon payment.On page one of the CD in Loan Terms: The lender is required to disclose a balloon payment, if one exists, how high it can go, and under what circumstances thelender requires it.
Characteristics of a HELOC
HELOC usually only requires monthly interest-only payments on the balance and can be paid down. Once the borrower pays the loan down, the borrower can take out more money.HELOCs offer a line of credit that is available for a period of time, commonly eight to ten yearsHELOCs have draw periods. This is the time period that the borrower can access the line. For example, a lender might issue a line of credit for $50,000 with a ten-year draw period. This means the homeowner can borrow as much as he or she wants up to $50,000 for the next ten years.There is no monthly payment if there is no balance on the line. Once the borrower uses the line/draws part of the proceeds, a minimum monthly payment (interest on the balance they have drawn) becomes due, much like a credit card. The lender charges interest based on some index, often the prime rate plus some set margin, making these loan rates variable with a set maximum. (floating interest rate, usually based on Prime Rate)Payments can be interest only or principal and interest. (No principal payment required unless the borrower chooses to, but the balance will be due at the end of the loan).At the end of the draw period, the borrower can no longer access the line of credit and must pay off the remaining balance.Depending on the loan terms, lenders might allow borrowers up to 20 years after the draw period to pay off the remaining balance.For example, the borrower does a kitchen remodel that costs them $25,000; they use the HELOC to do it. Then the borrower pays back that $25,000. They then decide they want to put a pool in; the borrower can go back and take that $25,000 out again and put in a pool.
.Fixed - Comparisons of types of loans (scenarios)
Most lenders predominantly issue fixed-rate mortgages with terms of varying lengths, that is, 30, 20, or 15 years. During the life of the loan, the rate remains fixed, and the payments are amortized into equal monthly installments so that the loan is paid off with the final payment.Another way to think of a fixed-rate loan is one that is not amortized; that is, it does not have equal monthly payments for the life of the loan. For example, a balloon loan can have a fixed rate with equal monthly payments for some set time initially, say, 3, 5, or 7 years, then the remainder of the loan is due in one large final payment.An interest-only loan might be based on a fixed rate, but at least initially the monthly payment due is interest only. Borrowers do not begin to pay down loan principal until some later specified time from months to years.
Reverse Mortgage - Permissible percentage of total equity allowed for withdrawal
Reverse mortgages are structured so that the balance on the loan is not larger than the value of the home. This is done so that the homeowner's estate or heirs will owe nothing additional after the home is sold and the loan paid. However, the loan amount could exceed the home value if the housing market suffers a decline, causing home prices to drop. (Non-recourse mortgage - if the mortgage balance is higher than the value at the end of the loan, FHA absorbs the loss) One of the first questions a borrower will generally ask is "how much can I borrow?" That number is called the "principal limit." The borrower's age, the interest rate on the loan, and the equity in the borrower's home determines the loan's principal limit. For example, an older borrower, with a sizeable equity and a lower interest rate, will have a higher principal limit than a younger borrower with a lower priced home and higher interest rates. The amount they can borrow will depend on the age of the youngest borrower or eligible non-borrowing spouse, current interest rate, AND the lesser of appraised value or the HECM FHA mortgage limit of $726,525 or the sales price
Reverse Mortgage - Timeline for calculating interest on home equity conversion mortgage loans
Reverse mortgages can be fixed- or adjustable-rate mortgages (ARMs). If you opt for an ARM, the interest rate on the loan can change as often as every month. The interest rate on a reverse mortgage cannot increase by more than 5 percentage points over the life of the loan.Fixed-interest reverse mortgages are available for some borrowers.Each HECM loan must provide for initial and subsequent interest rate changes to be calculated by adding a "mortgage margin" to the published index, and applying the rounding rule as described below. Each HECM with an interest rate that adjusts annually is subject to a 2% annual cap and a 5% lifetime cap. Each HECM with an interest rate that adjusts monthly is subject to a lifetime cap established by the lender at loan origination.As you get money through your reverse mortgage, interest is added onto the balance you owe each month. That means the amount you owe grows as the interest on your loan adds up over time (neg am).Interest rates may change over time. Most reverse mortgages have variable rates, which are tied to a financial index and change with the market. Variable rate loans tend to give you more options on how you get your money through the reverse mortgage. Some reverse mortgages - mostly HECMs - offer fixed rates, but they tend to require you to take your loan as a lump sum at closing. Often, the total amount you can borrow is less than you could get with a variable rate loan.
Reverse Mortgage - Required disclosures
TIL (Truth in Lending): TIL is an important document you will receive from the lender or bank within three days of your application. Within the document certain disclosures are set forth. Such as, finance charges, annual percentage rate (APR), amount financed, total of payments, and total sales price will be disclosed. This document is required on Reverse Mortgages and HELOC's after TRID was implemented.GFE (Good Faith Estimate): A GFE is a document that the lender is required to give a prospective borrower when they apply for a loan. The GFE is an estimate of all closing costs and fees required for the proposed mortgage loan. Only used for Reverse Mortgages and HELOC's after TRID was implemented.HUD-1 Settlement Statement: Standard form at closing which is used to itemize services and fees charged to the borrower by the lender or broker when applying for a loan for the purpose of purchasing or refinancing real estate. This form is used only for Reverse Mortgages and HELOC's since TRID was implemented
.Adjustable - Consumer Handbook (CHARM Booklet)
The Consumer Handbook on Adjustable Rate Mortgages is a required disclosure on all adjustable-rate mortgages (regardless of whether they are a purchase or a refinance). This document is also required to be disclosed by the lender within 3 (three) business days of application.
Fixed - . Characteristics of a fixed-rate mortgage
The fixed-rate mortgage is the most common type of mortgage available. Simply, it is a mortgage with a fixed interest rate over the entire term of the loan. Characteristics of a fixed-rate mortgage Has fixed terms of 10 years, 15 years, 20 years, 25 years, or 30 years.These mortgages have rates and payments that are fixed for the life of the loan.The most common fixed-rate loans are for terms of 15, 20, and 30 years.The loans are amortized over the life of the loan, which means the payment is calculated so that each month, the payment is the same and includes principal and interest. With each payment, the portion that goes toward paying down the principal gradually increases. If the borrower does not make any additional payments during the life of the loan, the mortgage is completely paid off with the last monthly payment in the last year of the loan.
Adjustable - Disclosures
The index for an ARM must be disclosed on the early ARM disclosure provided at application and on the promissory note when the loan goes to closing.Disclose the APR, a payment schedule, and whether the loan has a prepayment penalty.Loan Estimate shows the index and the margin being offered.The lender gives the borrower an ARM program disclosure when they give the borrower an application. This is the lender's opportunity to tell them about their different ARM loans and how the loans work.
Adjustable - Calculating a borrower's monthly payment
The monthly principal and interest payment on an ARM is likely to change after the initial period.The payments include mortgage insurance, property taxes, homeowners insurance, and any additional property assessments or other escrow items.
Fixed - Percentage of pay down required to lessen monthly payments
The more a borrower pays down, the less he or she will have to borrow, and the more it will reduce the potential monthly payment. In an ideal world, the borrower would pay down at least 20 percent. A 20 percent down payment reduces the need to pay monthly expenses for mortgage insurancePaying extra will not lower a borrower's monthly payment, but it will pay down the loan sooner. For example, making one extra payment each year on a 30year mortgage would satisfy the loan in about 25 years.
Fixed - Situations that affect a fixed-rate mortgage payment
The only time a payment changes on a fixed- rate mortgage is in the event of the borrower's taxes and insurance increasing (if the borrower is escrowing) or when the mortgage insurance is removed.Inflation of taxes or insurance is the only way that fixed-rate mortgage payments can go up. An example is if a borrower's taxes go up, the lender must then divide the new amount of taxes by 12 and add that back into the payment.
Fundamentals of Construction Mortgages - Facts on "construction to permanent" financing programs
The second type of construction is a Construction Permanent. You obtain one loan from a lender, only pay one set of closing costs.While you are building the house, you pay only interest on the draws to the contractor, as bills are presented. Once construction is done and the final inspection is issued, the lender will calculate the new P&I payment based on the amount of the loan and the remaining term of the loan.Ex. if it took 10 months to build the home, the new payment would be calculated on the remaining term of 350 months. (360 payments - 10 = 350 months remaining)
Adjustable - Examples of ARMs
There are three common types of ARMs, the hybrid ARM, the interest-only ARM, and the payment option ARM.- The Hybrid ARM: Hybrid ARMs are advertised as 3/1, 5/1, 7/1, or 10/1 ARMs. These types of ARMs are a mix between fixed-rate and adjustable-rate mortgages, hence the term hybrid. The ARMs are fixed for a specific amount of time before they begin adjusting. For example, the 3/1 for an example, the interest rate is fixed for three (3) years and then adjusts every one (1) year after that fixed period ends.- The Interest-Only ARM: An interest-only (I/O) ARM payment plan allows the borrower to pay only the interest on their loan for a specified number of years. Typically, interest-only ARMs allow for interest-only payment for 3 to 10 years. This option allows the borrower to have smaller monthly payments for that period. After the interest-only period, the monthly payment increases, and the borrower pays both principal and interest. Some I/O ARMs allow for the interest rate to adjust during the I/O period, some do not.
. Balloon Mortgage Loan Products Types of balloon mortgages
These loans generally have P&I payments before the balloon payment comes due, but the borrower will owe a big amount at the end of the loan. In a balloon mortgage, the borrower will pay interest and principal payments for a fixed term, usually the term of the balloon. After that fixed term is over, the borrower must pay off the rest of the balance of the loan.A balloon payment is more than two times the loan's average monthly payment and can often be thousands to tens of thousands of dollars. Most balloon loans require one large payment that pays off your remaining balance at the end of the loan.The balloon cannot be less than five (5) years (HOEPA)A balloon payment isn't allowed in a type of loan called a Qualified Mortgage, with some limited exceptions. Examples of how these mortgages look are 5/25 or 7/23.
Interest-only Mortgages Facts about interest-only mortgages Facts on interest-only payments
These loans require interest only payments on the loanAn interest-only (I/O) ARM payment plan allows the borrower to pay only the interest on their loan for a specified number of years. Typically, interest-only ARMs allow for interest-only payment for 3 to 10 years. This option allows the borrower to have smaller monthly payments for that period. After the interest-only period, the monthly payment increases, and the borrower pays both principal and interest. Some I/O ARMs allow for the interest rate to adjust during the I/O period, some do not.
Bridge Loans
This loan is between the termination of one mortgage and the beginning of the new mortgage.Ex. the loan between the construction loan and the permanent mortgage on the propertyA bridge loan is a short-term loan secured by the borrower's current home (which is usually for sale) that allows the borrower to use their equity for building or down payment on a purchase of a new home before the current home sells.A bridge loan is what it sounds like; it is a loan that bridges one transaction to another transaction. Bridge loans may occur when a borrower must relocate for work. For example, the borrower does not have enough time to wait for her current home to sell before she must move to her new location. She wants to purchase a new home in her new location but needs the equity that she would receive from the sale of her current home to buy a new home. The bridge loan allows the borrower to move to her new location and purchase a new home without her original home selling. The borrower pays off the bridge loan once the old house sells.
Reverse Mortgage - Amount of title insurance
Title insurance protects lenders and homeowners in the event there is ever a dispute over ownership of a property. In general, most policies are issued in an amount that equals the value of the property. Some policies state this as the maximum amount that a homeowner might be able to claim in the event of a dispute. The maximum claim amount is the value of the property.
