Purchase Loans
Buying a home is a major undertaking. In fact, for most first-time home buyers it can be the single most expensive purchase of your lives. The type of loan you select in financing your new home can affect your down payment, the total amount you pay and how much home you can purchase. I can help make this an easy process. Contact me before you begin your search, and I can pre-qualify you to determine you home loan price range and give you more negotiating power.
Types of Mortgages
There are many types of mortgage loans. The two basic types of amortized loans are the fixed-rate mortgage and adjustable rate mortgage (ARM).
Fixed-Rate Mortgage
Over the years, fixed-rate loans have been the most popular type of mortgage. You can count on a fixed payment amount for the life of the loan.
Adjustable-Rate Mortgage (ARM)
These loans usually offer lower beginning rates and varying time frames before rates are adjusted. If you are expecting to
increase your income - or if you plan to buy another home in a few years - this might be your best choice.
If you are considering an Adjustable Rate Mortgage, be sure to examine the loan terms carefully. I recommend that you look for a initial fixed-rate period of at least
5 years before the interest rate can change. Some companies have pushed borrowers into dangerous loans with initially low "teaser" interest rates
where the interest rate increases dramatically after a very short time - sometimes just one month after closing!
I am proud to say that every Adjustable Rate Mortgage that I have originated has had at least a 5-year initial fixed rate term. My
customers don't ever get nasty payment surprises from their mortgages!
Mortgage Features
There are many features that can be combined with either the fixed rate or adjustable-rate mortgage to tailor a loan to your specific needs or situation. With so many features available, we recommend that you call our mortgage specialists at (301) 651-3257 or contact us to find the loan that is perfect for you. Below, we have listed the two most popular features that our customers have requested, and when these features might be appropriate for you.
Interest-Only
To keep the monthly payments lower and maximize the deductibility of your mortgage payment, you can consider an Interest-Only loan. The interest-only feature can be combined with either the fixed rate or adjustable rate mortgage. While these loans were traditionally used by landlords to enhance monthly cash flows, they have recently become popular with regular homeowners as well. You need to be careful though, because the interest-only feature of the loan is for only a certain amount of years. For example, many 30-year mortgages with the interest-only feature become a traditional mortgage with the higher monthly payments after the first 10 years.
Option-ARM
An Option-ARM is an Adjustable Rate Mortgage that allows you the option to pay as little as a 1% interest rate. As a result, the difference between your payment and the
interest on your loan that month becomes negative. This is an important concept - If you make only the minimum payment amount, the amount
of money you owe the lender goes up!
If you see an advertisement for a "1.75% Mortgage", it is probably an Option-ARM. While the "1.75%" will be in huge letters, please realize that this
is the "Payment Rate" and not the "Interest Rate". Look closely at the fine print and you will probably see a much higher number quoted as the Annual
Percentage Rate (or APR). This is the true rate that you are paying on the borrowed money.
The Option-ARM gives you four payment choices each month (1%, interest only, 30 year
fixed rate, 15 year fixed rate). The interest rate may adjust frequently, depending on which index the loan is tied to. These loans
were designed for financially sophisticated people who have varying or seasonally different monthly incomes, as well as investors, allowing them the flexibility to
choose which payment to make every month.
For the regular borrower, the Option-ARM is a bad solution. If the only way can only afford the house is to make the minimum 1.75% payment, then the house is
too expensive for you. You should be looking at properties where you can afford a "normal" mortgage at a market interest rate.
I have never originated an Option-ARM mortgage. Every time that a client asked about one, I would sit down with them and explain how it works completely. During the
discussion, they would always come to the same conclusion - that a more traditional mortgage was the best financing solution for them.