Foundation Financial Group

Fixed Rate Mortgage

A Fixed Rate Mortgage is, as the name implies, a mortgage with a fixed monthly rate. The benefits of fixed rate mortgages are obvious: your interest payments won't increase, and you'll be able to plan a budget around it. There are several types of FRMs to consider:

• 30-Year
• 15-Year
• 10-Year

The 30-Year FRM is probably the mortgage plan that comes to mind when you think of a mortgage. It provides the lowest monthly interest payments of FRMs, while staying consistent with a static monthly payment schedule. There are some lenders who offer 20, 25, or 40 year loans that you can take advantage of, but remember - the longer the period, the more you pay in interest. The shorter the period, the more you pay monthly.

The 15-Year FRM is half the duration of a 30-Year loan, which means you pay it off twice as fast and pay half as much total interest. You will, however, pay more monthly to account for this. This type of FRM is appealing to homebuyers that strive to own their home before their children are college age or before they reach retirement age.

The 10-Year FRM is designed for those that desire to have one of the shortest mortgage terms available, resulting in reduced overall interest amounts. The 10 year term, although provides those benefits, also results in a significant higher payment amount, so if it’s affordable, it just may be the right choice for you!

FHA/VA Loans

Federal Housing Administration and Veterans Administration loans are insured by government agencies that typically feature low/no down payment terms and are often assumable by future purchasers. VA loans are reserved for individuals who have served in the military. FHA loans, however, are open to all qualified home purchasers. These loans are of different types and include FRMs and ARMs.

Interest-Only Mortgage

Interest Only Mortgage is a payment option offered on FRM's and ARM's that allows you to pay only the interest portion of your monthly payment for a fixed period of time ranging from three to ten years. At the end of that period, your loan will become fully amortized, resulting in greatly increased monthly payments that are larger than they would have been if the loan had been fully amortizing from the beginning. There are several advantages to the Interest Only Mortgage:

• During the interest only period, your monthly payments are the lowest they can possibly be
• You have the chance to qualify for a larger loan, or possibly a larger home
• The entire monthly payment is tax-deductible interest during the interest only period

Combo Mortgage

There are several types of Combo Mortgages, also called "hybrid" loans. They often incorporate different pieces of the FRM or ARM plans. Some examples are listed below:

• Fixed-Period ARM
  • With Fixed-Period ARMs, you can enable a period of fixed payments for the first few years of the mortgage and then switch to adjusting annually. Typically, in addition to an adjustment cap, there is also a "first adjustment" cap; This limits the amount that the first adjustment, after the period of fixed rate payments has expired, can change.
• Two Step-Mortgage
  • A Two-Step mortgage maintains a fixed rate for a period of time, often 5-7 years, and then adjusts to the current market rate. The new market rate is then set as the new fixed rate for the remainder of the loan.
• Convertible ARM
  • Convertible ARMs are ARMs with the option to convert to a FRM at certain times, usually during the first five years or the adjustment date. If market interest rates begin to rise, the new rate is established at the current market rate for fixed rate mortgages. One of the advantages of the conversion process is the ease at which it is accomplished. It requires only a nominal fee and almost no paperwork. The disadvantage to the process is that the conversion interest rate is usually a little higher than market rate at the time of conversion.
  • Another type of convertible mortgage is a FRM with a reduction option. If rates have dropped, under some prescribed conditions and for a conversion fee, you can convert to adjust with the going market rate. Generally, the interest rate or discount points may be a little higher for a convertible loan.
• Graduated Payment Mortgage
  • GPMs have payments that gradually increase, starting at a low amount, at predetermined times. The payments will eventually be higher in order to make up for the earlier, lower payments and your loan will, in fact, be negatively amortizing during this early period. You will have to pay off the principal at an accelerate pace during the later years. This may be a hindrance, but lower initial payments can allow you to qualify for a larger loan amount.

Adjustable Rate Mortgage

ARMs were developed during a time of high interest rates. These high rates kept many people out of the housing market. Each ARM has four basic components:

• Initial Interest Rate: This is usually several points lower than most FRMs. These lower rates help make ARMs easier to qualify for. This rate is also tied to certain economic indicators that dictate, partly, what the monthly payments will be.
• Adjustment Interval: The time at which the interest rate is adjusted and/or the monthly payments are made.
• Index: Lenders measure this against the difference between the return they are getting on their mortgage investment and what they could be making on different types of investments.
• Margin: This is added to the index to establish the adjusted rate on an ARM, usually 1.5% - 2.5%.

In addition to these components, ARMs also contain certain consumer safeguards. An example of a customer safeguard is an interest rate cap, which limits the amount that the interest rate can change over the life of the loan. This is an attempt to prevent the amount of interest from becoming more than the borrower is able to pay. Another example of a customer safeguard is a monthly payment cap, which limits the amount that the payment can change at each adjustment, reducing the risk of payment shock to homeowners.

Buydown Mortgage

A Buydown Mortgage is a type of mortgage where there the initial interest rate is discounted and then gradually increases to an agreed-upon fixed rate during the first 1 to 3 years. This allows you to qualify for a more expensive house with the same amount of income with the advantage of lower initial monthly payments for the first few years. The money saved during this period is commonly used for furnishings or home improvements. You can also make an initial lump sum payment to the lender in order to reduce your monthly payments during the first few years.

Reverse Mortgages

Reverse Mortgages are a special type of home loan where borrowers receive monthly payments for a fixed period they select, or as long as they occupy the home as a principal residence. There are several requirements to qualify for this loan:

• Borrower must be at least 62 years of age
• The home must be their principle residence
• The homes' mortgage must have little or no balance remaining
• Loan amount depends on age, the expected interest rate, and the appraised value of the property

Reverse mortgages do not require repayment until the borrower moves, sells, or passes away.