Mortgages

Mortgages


Types of Mortgages

Mortgages are a contractual agreement between a money lender (usually banks) and an individual purchasing a property. The money lender then holds the title until the debtor pays back the amount of the loan. In most traditional mortgages the debtor is gaining equity in the property as they pay off the mortgage.

If you are a first time home buyer check out our article on everything you need to know as a first time home buyer.

Current mortgages have different types including:

Fixed rate mortgage

This is the simplest form of mortgage and the safest. In a fixed rate mortgage the interest rate increases are planned when you sign the mortgage on day one. The benefit is that you know exactly how much you will pay each month and each year. The downside is that if the market calls for decreased interest rates you lose out on the lower rates that would provide.

One year ARM

This type of mortgage means the first year is a fixed rate followed by subsequent years of adjustable rates. The ARM stands for Adjustable Rate Mortgage. These mortgages can change the rate every year and allow the customer to get a higher value home as banks are more willing to lend for this type of mortgage.

10/1 ARM-

This means that the first 10 years are a fixed rate mortgage and each year after that for the remainder of the plan is an adjustable mortgage.

2 Step mortgage

This Mortgage has 2 rates, one rate for the first “part” of the time and another rate for the second “part” of the loan. The interest rate adjusts with the market, so depending on if the market is up or down will mean the second part of the mortgage will cost more or less.

5/5 and 5/1 ARMs

This is a loan that is fixed for 5 years, then adjusted. (for 5/5 it is adjusted once every 5 years, for 5/1 it is adjusted every year)

5/25 mortgage

This mortgage acts as if the last 25 years of the mortgage acts as its own smaller loan. The first 5 years are a fixed rate then the rate is adjusted one time on the 6th year and that rate is kept for the remaining 25 years.

3/3 and 3/1 ARMs

As you can probably guess at this point the numbers in front of the ARM mean how long the loan stays at a fixed rate, for the 3/3 the rate is adjusted once every 3 years. For the 3/1 the rate is fixed until the 4th year then adjusted every year until the loan is repaid.

Balloon Mortgage

These are usually used as a short-term loan. The monthly payments are low and the customer is mostly paying on interest. When the loan ends there is a balloon payment. This would be used if someone plans on living somewhere short term then selling the house. The sale would pay the balloon payment and it would lead to a cost on the monthly payments. However, if someone has to refinance at the end because they cannot pay the balloon payment it usually means a higher rate than usual.

If you are having trouble finding a mortgage or want help finding a better way to finance and buy a home call us here at Dynamic Real Estate Innovations, LLC. 503-376-6060!

Additional facts

The Fair Housing Act brought about a new way to draw out a mortgage. They can subsidize mortgages to help with families who would normally not be able to afford a 20% down payment on a property. In 2010 FHA loans represented 34.5%, now they are on the rise again. Up to 22% in 2016 from 17.8% in 2014. (USA today)

Different mortgage lenders charge have different fee structures. Banks and Financial institute will have different fees, ensure that you ask before locking into a single institute.

You can lower your down payments in a few ways. One mentioned above is the FHA loan. A VA loan for those in the military and their families. USDA loans for farmers and their families.

 

Sources:
Mortgage calculator
http://www.mortgagecalculator.org

 

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