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Loan(s) Product Summary

SUMMARY Introduction Many of the loan products listed below came into existence during the high interest rate markets of the 70s and 80s. They are not as common today as the more popular Fixed-Rate loan, ARM, and Hybrid ARM. But they do offer some homeowners great benefits for particular needs. If you have any interest in any of the following loan products, be sure to discuss these product options with your lender or broker. Balloon Mortgages your monthly payments are based on any fixed term up to 30 or 15 years amortization. At the end of the balloon period, your remaining mortgage loan amount will come due. Zero-Down Payment Mortgages allows the donor to deposit the cash gift into an interest-bearing account as collateral for the zero-down payment. The gift money keeps earning interest — and it allows the first-time home buyer to purchase their first home with zero-down. Pledged Asset Mortgages targeted to buyers with sufficient income who want to pledge their investments as collateral instead of a making a cash down payment. Other Mortgage Loans buy-downs and graduated mortgage plans:

 

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Loan(s) Advantages and Disadvantages

why select these loans Diversifcation you are looking for a diversify way to finance their loan than the traditional fixed and ARM mortgages Income Expectations you expect their incomes to rise significantly in later years — so they are looking for a smaller monthly payment at first with expectation to afford larger payments in later years Finance Large Home Purchases you are financing a large home purchase that requires nontraditional financing Special Circumstances your needs require special financing - many of these programs assist home buyers in special circumstances   DISADVANTAGES Other Products many of the Hybrid ARMs offer similar rates and terms Value Risk there is risk of losing value if market conditions change Confusion these loans are less familiar than traditional loans and may confuse homeowners on loan management

 

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Balloon Mortgages

Many lenders offer 3- and 5- and 7-year balloon periods with attractive low interest rates.

A Balloon Mortgage means that your monthly payments are based on any fixed term up to 30 or 15 years amortization. At the end of the balloon period, your remaining mortgage loan amount will come due.

Balloon mortgages are popular with people whose income is prone to fluctuate or who are not planning to stay in their home for more than 3, 5 or 7 years. It offers the security of a Fixed Rate Mortgage but at a lower rate.

When you balance comes due,

most lenders offer the option to refinance at a new rate and term if you are unable to payoff the mortgage. Many balloon mortgage holders will choose to refinance their mortgage.

Advantages / Disadvantages:

• Balloon loans come with lower rates
  
• But the homebuyer runs the risk of being in the home longer than the balloon period — thus forcing them to refinance (which could be be costly)
  
• More attractive loans with similar rate advantages but with lower risk are Hybrids 3/1, 5/1, 7/1 loans

Zero Down Payment Mortgages

The Zero Down Payment Mortgage allows the donor to deposit the cash gift

into an interest-bearing account as collateral for the zero-down payment. The gift money keeps earning interest — and it allows the first-time home buyer to purchase their first home with zero-down. It also allows many families to help young people get started on home ownership with a gift that usually goes towards the down payment.

The zero-down mortgage may vary from fixed-rate and ARMs.

Zero-Down Payment Mortgages are restricted in certain states.

Advantages / Disadvantages:

• Zero-downs can help new home buyers get into their home with help from family or other parties
  
• Donors who donate the funds can earn interest on the money while the money remains in the home as the down payment
  
• Major drawback is in the event that the home owner default on the mortgage, the donor will lose their investment.
  
• Likewise, the investment remains tied in the home at relatively low rates of return when compared to other investments.

Pledged Assets

Referred to as asset-backed mortgages:

Targeted to buyers with sufficient income who want to pledge their investments as collateral instead of a making a cash down payment. Pledged assets may include investments, CDs, mutual funds, stock portfolios, and investment property.

Generally, pledged assets are maintained in a collateral account maintained by the lender.

Pledged assets can be used for other family members, such as Zero-Down mortgage programs.

Pledged assets will remain as investment instruments, respectively gaining market value for the homeowner. However in most cases, the homeowner will not be able to sale or change the investment strategy without approval by the lender.

Homeowners should calculate the investment difference

Between the higher interest rate charges for pledge-asset mortgages and the investment potential gain of the pledge asset. There are disadvantages. If the homeowner defaults on the mortgage, the lender gets both the pledged assets and the home.

Buydown Mortgages

Buydown Mortgages

These loans are temporary buydowns that initially start off with a discounted rate that gradually increases to an agreed-upon fixed rate.

You will "buydown" the mortgage with an initial payment up-front to take advantage of lower monthly payments in the first few years. If you don't have the cash to buydown the mortgage, some lenders will forgo the fee for an higher interest rate.

A common buydown product is the 2-1 buydown:

Example:
if the interest rate on the mortgage loan is 7%, the 2-1 buydown begins with an initial discounted rate at 5% in the first year, increases to 6% in the second year, and then levels off at 7% for the remaining term of the loan.

You will need to prepay the payment differences between 5% and 7% for the first year; between 6% and 7% in the second year.

Graudated Mortgage Plans

Often referred to as the Reduction Option Loan (ROL),

or in some areas, the Reducing Interest Loan (RIL) or Mortgage (RIM).

For a fee, the homeowner can adjust their current interest rate to a lower prevailing market rate. The homeowner generally pays some up-front points for this mortgage option.

With this product, the homeowner can take advantage of lower interest rates without paying costs associated with refinancing when they choose to convert.

GPMs usually start at low interest rates and then graduate up at predetermined times.

Initial payments will be negatively amortized during the early years, then payments will rise as required to pay off the loan during the 15 or 30 year term.

The advantage of GRMs allows buyers to finance a larger loan with expectations to pay higher monthly payments over the next 5 to 7 years before leveling off at a fixed payment for the remaining term of the loan.

Note: The loan information above is general information related to mortgage products and the mortgage lending process. The information does not represent terms of any particular lender. Lenders whom you may work with may offer different product terms.

PickMyMortgage.com is not a lender. Therefore, we cannot quote rates or guarantee best terms. We refer applicants interested in getting a lending quote to Secure Rights, a licensed mortgage broker representing multiple lenders.