Section 7 _Some
General Mortgage Types
"NO
COST" MORTGAGES - All types of mortgages can be considered
on a virtually "no cost" basis. The reason there are
quotation marks around the "no cost" is because "no
cost" mortgages do not exist in reality. This is because
to make a mortgage "no cost" requires a higher interest
rate than the lower rate you could get if you were to pay your
non-reoccurring closing costs plus a one point (1%) origination
fee. Non-reoccurring closing cost consists of all escrow, title,
lender and broker fees not including PITI (mortgage principal
& interest, property taxes, homeowner's insurance, and other
applicable miscellaneous fees). Closing costs can also be reduced
by a slight increase in the interest rate.
FIXED RATE
MORTGAGES - With a Fixed Rate Mortgage, the most common
type of mortgage, your monthly payments never change. Property
taxes, homeowner's insurance, and PMI may change, but not your
monthly payments.
Fixed Rate Mortgages come with several different term options.
The most common is the 30-year but there are also 20, 15 and even
10-year terms. There are also "bi-weekly" mortgages,
which shorten the mortgage by requiring half the regular monthly
payment every two weeks. Since there are 52 weeks in a year, you
would make 26 payments, or 13 "months" worth, every
year. Making 13 payments a year will cut approximately 8 years
off of a 30-year mortgage.
The interest rate on fixed rate amortizing
mortgage remains fixed for the life of the mortgage and the payments,
which remain constant, pays off the entire mortgage at the end
of the term . If you have a further interest in this payment method,
check out the Amortization
Calculator and the
Bi-Weekly
Payment Calculator for examples on how this works.
During the initial payment stages of a fixed rate mortgage's amortization
period, a large percentage of the monthly payment is applied toward
interest. As the mortgage is paid down, more and more of the monthly
payment goes toward principal. For example, a 30-year fixed rate
mortgage will take approximately 22.5 years to be paid in full.
ADJUSTABLE
RATE MORTGAGES - ARMs generally begin with an interest
rate that is 2-3 percent below a comparable fixed rate mortgage.
The interest rate is subject to changes at specific intervals
if market conditions change. If indexed rates go up, your interest
rate and monthly payment will go up; however, if rates go down,
so will your payments.
There are also hybrid mortgages that combine aspects of both fixed
and ARM mortgages. These mortgages are fixed for 3, 5, 7 and 10
years, and then adjust to market conditions. Your unique situation
and goals must be discussed with one of our Senior Analysts prior
to your deciding on this mortgage type as there are many factors
to consider in these often misunderstood programs.
The Start Rate on lower interest
rate ARMs which are generally below the current market rate of
a fixed rate can range from 1 month to as long as 10 years. As
a rule, the lower the start rate the shorter the time before the
mortgage makes its first adjustment.
