Mortgage Loan Types

There are many variations of these mortgage loan programs and numerous loan options that we offer.  We will be happy to fully explain all of your loan options.

Fixed Rates - Fixed rate mortgages have level, constant payments of principal and interest because the interest cannot change.  It is fixed.  The most common terms for fixed rate loans are 15 and 30 years, but loans can be amortized over 10, 20, or 25 years.   These are the safest, most secure loan programs.  The level monthly payment makes fixed rate loans attractive to those staying in properties over 8 - 10 years.

Adjustable Rate Mortgages (ARMs) - These loans have a fixed period during which time the payments are fixed and level.  For example, a 3/1 ARM is fixed for the first three years, then becomes a 1 Yr. adjustable rate from years 4 - 30, adjusting every year to a new rate, subject to annual and lifetime caps on increases and decreases.  The adjustment each year after the initial fixed rate period is determined by this formula; Rate = Index plus Margin.  The most common index is the US 1 Year Treasury Constant Maturity.  The margin is determined by the lender, usually between 2.75% and 3.00%.  Rate adjustment caps generally apply to limit increases in rate per adjustment and over the life of the loan. ARMs are for the more sophisticated borrower who knows the length of time in the property is limited or knows that a refinance opportunity will occur during the initial fixed rate period of the ARM.

Balloon or Two-Step Mortgages - These are fixed rate loans that generally have a 5 year or 7 year fixed rate period.  At the end of the fixed rate period,  these loans will have a balloon, or final payment provision, or have a lender-opted conversion to a new fixed rate for the remaining 25 or 23 year term.   Certain criteria must be met on a two-step loan for the lender to grant a new term at a new interest rate.  It is likely that the conversion feature on the two-step loan is not valuable to borrowers since the conversion rate is slightly higher than what they could refinance their loan for on the open market.

Piggyback 1st and 2nd Mortgages  -  A combination loan of a 75% or 80% 1st mortgage and a 15% or 10% 2nd mortgage can help savvy borrowers escape paying Private Mortgage Insurance (PMI) with as little as 5% or 10% down.  Normally, a down payment of at least 20% is required to avoid paying PMI.  These loans are typically known as 80/10/10's or 75/15/5's.  These combination loans can be done on fixed rates and most adjustable rate programs.  In some cases, an 80/15/5 can be done allowing the qualified borrower to put down only 5%, while still avoiding PMI.

Which loan is right for me?

Years you plan to stay in the house	Recommended program
1-3	3/1 ARM, 1 year ARM or 6 month ARM
3-5	5/1 ARM
5-7	7/1 ARM
7-10	10/1 ARM, 30 year fixed or 15 year fixed
10+	30 year fixed or 15 year fixed

Loan Programs

Advantages

Disadvantages

Fixed Rate Mortgages
30 year fixed 15 year fixed	Monthly payments are fixed over the life of the loan Interest rate does not change Protected if rates go up Can refinance if rates go down	Higher interest rate Higher mortgage payments Rate does not drop if interest rates improve
Adjustable Rate Mortgages
10/1 ARM 7/1 ARM 3/1 ARM 1 year ARM 6 month ARM 1 month ARM	Lower initial monthly payment Lower payment over a shorter period of time Rates and payments may go down if rates improve May qualify for higher loan amounts	More risk Payments may change over time Potential for high payments if rates go up
Balloon Mortgages
7 year 5 year	Lower initial monthly payment Lower payment over a shorter period of time Many balloon mortgages offer the option to convert to a new loan after the initial term	Risk of rates being higher at the end of the initial fixed period Risk of foreclosure if you cannot make balloon payment or if you cannot refinance or if you cannot exercise the conversion option
VA Loans
30 year fixed 15 year fixed	Low down payment needed for purchases Can have less than perfect credit Allows for interest rate reduction loan if you refinance	VA funding fee is added to your loan balance Higher interest rates
FHA Loans
30 year fixed 15 year fixed	3% down payment More lenient credit criteria	Higher mortgage insurance premium added to loan balance
CalPERS
	Home Loans for CalPERS members with free floatdown and reduced closing costs!	No bankruptcy in the last ten years allowed
Stated Income Programs
	Don't need to verify income Faster approval	Higher rates Higher down payment
No point, No fee Programs
	No closing costs Less money required to close	Higher rates Higher payments
Imperfect Credit Programs
	Potential for re-establishing credit if you pay your mortgage on time When used for debt consolidation, you may be able to reduce your monthly debt payment	Higher rates Terms may not be as favorable Harder to get long term fixed loans Loans may have prepayment penalties
Home Equity Line of Credit
	You only borrow what you need Pay interest only on what you borrow Flexible access to funds Interest may be tax deductible	Rates can change. The maximum interest rate is normally high Payments can change Harder to refinance your first mortgage
Home Equity Fixed Loan
	Fixed payments Interest may be tax deductible	Higher interest rates than on 1st mortgages Harder to refinance your first mortgage