For every individual situation there is a beneficial program that will complement it. Depending on the reasons for refinance and future financial plans, these will determine the program that you will choose. The best thing to do is go over your mortgage options with a loan officer.There are two main types of mortgage programs; fixed and adjustable rates. Some programs have a combination of the two.
Fixed products have a constant interest rate. These mortgages have the advantage that the interest rate will never go above the initial start rate.
Adjustable products have an interest rate that can adjust every six months. The advantage of an adjustable mortgage is that the interest rate on these programs are discounted and for the right home owner this program can save you a great deal of money.
Fixed Products are mortgage loans which have a constant interest rate and payment amount for the life of the loan. On a fixed product, the start rate is the floor rate. This means that the rate will not drop below the initial interest rate. The most common fixed mortgages have terms of 10 year, 15 years, 20 years, or 30 years.
A fixed rate program has advantages in that the interest rate will never go above the initial start rate. No matter what happens to the federal rate your interest rate is guaranteed.
Who is this program right for?
Borrowers with good credit and available to qualify for low interest rates, should lock themselves into a fixed rate program.
Adjustable Products are mortgage loans in which the interest rate and payment amount fluctuate during the life of the loan. The interest rate and payment may adjust every six months. Adjustable programs are fixed for a certain period, most commonly 1, 2 or 3 years.
Every program has its own safeguards built into the mortgage. The most common safeguard discloses that the interest rate can never go up or down by more than 1.5% every six months, and the interest rate will be capped at a pre-disclosed rate.
The interest rate for adjustable rate mortgages are determined by the Index. The Index is the average of interbank-offered rates for six month US dollar denominated deposits in the London market (LIBOR), as published in The Wall Street Journal Six Month LIBOR Rate.
Benefits of Adjustable Rate Mortgages:
AN ADJUSTABLE RATE MORTGAGE WILL HAVE LOWER INTEREST RATES THAN A FIXED PROGRAM. The rate will fluctuate, but when the prime rate is low, your interest rate will decrease also.
Who is this program right for?
Adjustable Rate Mortgages (ARM) are designed for specific situations and borrowers. These mortgages are intended to help borrowers obtain lower rates while their current situation is unstable or undetermined. Home owners that intend to sell or move will take advantage of an adjustable mortgage, since they will not need the loan for the full term. For borrowers that have sub-par credit, they can obtain an adjustable rate mortgage and take advantage of the fixed portion of the loan to help their current situation, and then refinance when their credit becomes better after a few years.
Home equity line of credit, also known as HELOC, is a simple interest loan during the draw period. Monthly payments will vary, depending on the outstanding balance and fully indexed rate. Interest is calculated the day after principal payments are made.
Because the borrower pays interest only on the outstanding Home Equity Line of Credit balance, a substantial savings can be realized by paying the loan off early. Also, payments to the principal immediately reduce the monthly payment, potentially SAVING THE BORROWER HUNDREDS, OR EVEN THOUSANDS OF DOLLARS.
A Home Equity Line of Credit is a revolving line of credit, similar to a credit card. This means that during the draw period, the available credit can be used over and over again as the balance on the Home Equity Line of Credit is paid down. The borrower is given flexibility and control over the amount of money to borrow, since the borrower has a choice of either drawing the full amount of the credit line, or using the funds only as needed. As the borrower makes payments and reduces the outstanding balance, the line of credit is restored and available for use again.
Securing a Home Equity Line of Credit with the equity in the borrower’s home makes it possible to offer larger credit lines, up to $500,000. In most cases, interest payments are tax deductible, unlike credit cards or personal / unsecured loans.
There are a variety of reasons that home owners take out a Home Equity Line of Credit. Such reasons include, debt consolidation, home improvements, education, automobile purchase, investments, vacations, business ventures, etc.
A draw period is the time frame in which the borrower can utilize the available credit on the loan. A draw is a periodic advance of funds against that line of credit. When the borrower makes a minimum payment during the draw period, funds are applied towards interest only, not principal.
The repayment period is the remaining term of the loan after the draw period. During the repayment period, the borrower can not draw down funds from the Home Equity Line of Credit. When the borrower makes a minimum payment during the repayment period, funds are applied towards interest and principal.
What are Balloon Products ?
Balloon Products are mortgage loans that will have monthly payments that will fully amortize over a stated term. At the end of the term, a balloon payment will be due. The balloon payment will require a lump sum of the remaining balance of the loan. Balloon programs are designed to be refinanced at the maturity.
Credit Comeback / Repair
A credit comeback, also known as a credit repair program is designed to help borrowers with previous mortgage lates. A credit comeback program will give the borrower an opportunity to lower their interest rate by .375% every year for the first 4 years when they have made their previous 12 payments on time. For example, when your loan is one year old and you have made your first 12 payments on time, your rate will reduce by .375% for the following year. The credit comeback program means your rate can never go up, but can be reduced by up to 1.5%.