A Home Loan Mortgage Program

Choosing a Home Loan Mortgage Program

can sometimes be a difficult decision, especially when the right loan program depends of many different factors.That's why Funding America offers free consultation and takes pride in our exceptional customer service to assist you, and direct you into the best home loan program to fit your needs. Let us review your situation and guide you into a program that benefits you and your family. Whether you're buying, selling or refinancing we have the right loan program for your personal needs. There isn't a single or simple answer and the right type of mortgage for you depends on many different factors:

• How comfortable are you with your mortgage payment changing
• Your current financial picture
• How long do you intend to keep your house
• How you expect your finances to change

Our mortgage worksheet application is available for your review.

A 15 year fixed rate mortgage can save you thousands of dollars in interest payments over the life of the loan, however your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage however your monthly payments may increase over the life of the loan.

The best way to find the right answers is to discuss your finances, your plans and prospects with a professional mortgage person.

A mortgage worksheet can be filled out and submitted for review or you can call the branch manager for a complete mortgage application.

Funding America has numerous loan programs to offer; here are a few defined terms:

Fixed Rate Mortgages The most common type of mortgage in the industry. Your monthly interest and payments never change.

Fixed-rate mortgages are available for 10 years, 15 years, 20 years and even 30 years. There are also bi-weekly mortgages, which shorten the home loan by calling for half the monthly payment every two weeks. Since there are 52 weeks in a year, you make 26 payments, or 13 months worth, every year.
During the early amortization period, a large percentage of the monthly payment is used for paying the interest . As the loan is paid down, more of the monthly payment is applied to principal . A typical 30 year fixed rate mortgage takes 22.5 years of level payments to pay half of the original loan amount.

Adjustable Rate Mortgages (ARM) These loans generally begin with an interest rate that is usually below a comparable fixed rate mortgage.

However, the interest rate changes at specified intervals i.e. yearly, depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up. However, if rates go down, your mortgage payment will drop also.
There are also mortgages that combine aspects of fixed and adjustable rate mortgages; starting at a low fixed-rate for seven to ten years, for example, then adjusting to market conditions. Ask your mortgage professional about these and other special kinds of mortgages that fit your specific financial situation.

The Graduated Payment Mortgage program is another alternative to the conventional adjustable rate mortgage, and is making a comeback as borrowers and mortgage companies seek alternatives to assist in qualifying for home loan financing.

With a GPM the payments are usually fixed for one year at a time. Each year for five years the payments graduate at 7.5% - 12.5% of the previous years payment. These percentages may vary, unlike an adjustable rate mortgage, graduated payment mortgages have a fixed note rate and payment schedule.

Graduated Payment Mortgages are available in 30 year and 15 year amortization, and for both conforming and jumbo loans. With the graduated payments and a fixed note rate, GPMs have scheduled negative amortization of approximately 10% - 12% of the loan amount depending on the note rate. The higher the note rate the larger degree of negative amortization. This compares to the possible negative amortization of a monthly adjusting ARM of 10% of the loan amount. Both loans give the consumer the ability to pay the additional principal and avoid the negative amortization. In contrast, the GPM has a fixed payment schedule so the additional principal payments reduce the term of the loan. The ARMs additional payments avoid the negative amortization and the payments decrease while the term of the home loan remains constant.

The note rate of a GPM is traditionally .5% to .75% higher than the note rate of a straight fixed rate mortgage. The higher note rate and scheduled negative amortization of the GPM makes the cost of the mortgage more expensive to the borrower in the long run. In addition, the borrowers monthly payment can increase by as much as 50% by the final payment adjustment.The lower qualifying rate of the GPM can help borrowers maximize their purchasing power, and can be useful in a market with rapid appreciation. In markets where appreciation is moderate, and a borrower needs to move during the scheduled negative amortization period they could create an unpleasant situation for their home loan.

Differences of Adjustable Rate Mortgages may offer a few options to fit your individual needs and your risk tolerance with the various market instruments.ARMs with different indexes are available for both purchases and refinances. Choosing an ARM home loan with an index that reacts quickly lets you take full advantage of falling interest rates. An index that lags behind the market lets you take advantage of lower rates after market rates have started to adjust upward.

Six month Certificate of Deposit (CD) ARM Has a maximum interest rate adjustment of 1% every six months. The six month Certificate of Deposit index is generally considered to react quickly to changes in the market.

Six month Treasury Average ARM has a maximum interest rate adjustment of 1% every six months. The Treasury Average index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators.

12-Month Treasury Average ARM Has a maximum interest rate adjustment of 2% every 12 months. The treasury Average index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators.

One Year Treasury Spot ARM

Has a maximum interest rate adjustment of 2% every 12 months. The 1-Year Treasury Spot index generally reacts more slowly than the CD index, but more quickly than the Treasury Average index.

Most Adjustable Rate home loans have a low introductory rate or start rate, some times as much as 5.0% below the current market rate of a fixed loan. This start rate is usually good from 1 month to as long as 10 years. As a rule the lower the start rate the shorter the time before the loan makes its first adjustment.

The index of an ARM is the financial instrument that the loan is adjusted to. The most common indices, or, indexes are the 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI). Each of these indices move up or down based on conditions of the financial markets.

The margin is one of the most important aspects of ARMs because it is added to the index to determine the interest rate that you pay on your home loan. The margin added to the index is known as the fully indexed rate. As an example if the current index value is 5.50% and your loan has a margin of 2.5%, your fully indexed rate is 8.00%. Margins on loans range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value.

All adjustable rate loans carry interim caps. Many ARMs have interest rate caps of six-months or a year. There are loans that have interest rate caps of three years. Interest rate caps are beneficial in rising interest rate markets, but can also keep your interest rate higher than the fully indexed rate if rates are falling rapidly.

Some loans have payment caps instead of interest rate caps. These loans reduce payment shock in a rising interest rate market, but can also lead to deferred interest or "negative amortization". These loans generally cap your annual payment increases to 7.5% of the previous payment.

Almost all ARMs have a maximum interest rate or lifetime interest rate cap. The lifetime cap varies from company to company and loan to loan. Loans with low lifetime caps usually have higher margins, and the reverse is also true. Those loans that carry low margins often have higher lifetime caps.

London Interbank Offered Rate (LIBOR) is the rate on dollar-denominated deposits, also know as Eurodollars, traded between banks in London. The index is quoted for one month, three months, six months as well as one-year home loan periods. Visit our home page for more on LIBOR rates.

LIBOR is the base interest rate paid on deposits between banks in the Eurodollar market. A Eurodollar is a dollar deposited in a bank in a country where the currency is not the dollar. The Eurodollar market has been around for over 40 years and is a major component of the International financial market. London is the center of the Euromarket in terms of volume.

The most common quote for mortgages is the six month quote for a home loan. LIBOR's cost of money is a widely monitored international interest rate indicator. LIBOR is currently being used by both Fannie Mae and Freddie Mac as an index on the loans they purchase.

Balloon Mortgages are short term mortgages that have some features of a fixed rate mortgage. The loans provide a level payment feature during the term of the home loan, but as opposed to the 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term. Balloon loans can have many types of maturities, but most balloons that are first mortgages have a term of 3 to 7 years.

At the end of the home loan term there is still a remaining principal loan balance and the mortgage company generally requires that the loan be paid in full, which can be accomplished by refinancing. Many companies have other options such as a conversion feature at the end of the term. For example, the loan may convert to a 30 year fixed loan at the thirty year market rate plus 3/8 of a percentage point. Your conversion can be guaranteed based on certain criteria such as having made your last 24 payments on time. The balloon mortgage program with the conversion option is often called a 7/23 Convertible or 5/25 Convertible.

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