Mortgages - Types Of Mortgages

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Mortgage Disclosure

Interest-Only

• Before You Apply

What to do to prepare up to a year in

advance of your mortgage application.

• Can You Trust Your Loan Officer?

Who does your loan officer really work

for, and how do you find the best one?

• Lender, Broker, or Bank?

What type of loan Provider is right for

you?

• Types of Mortgage Loans

The types of mortgage loans and

their advantages and disadvantages.

• Types of Documentation

Your options for disclosing how much

you make and where it comes from.

• Underwriting

What does an underwriter look for

when analyzing your loan application?

• Pre-Approval

What it is and isn't and how it saves you

time and heartache.

• Credit

What it is, and how it affects your life.

• Income & Employment

How much you need to make and for

how long in order to qualify.

• Assets/ Down Payments

How much, where from, and what kind

of money will work.

• Down Payment Assistance

Short on funds? Learn about your

options and explore these resources.

• Processing

What happens to your application after

you sign it and before you close?

• Title

What is it, what does it mean, and how

does it work?

• Appraisals

What is your home worth, why you

should bother to find out, and how

does it affect your loan?

• Alternate Financing

Facing rejection? Time to get creative.

• FHA

Low down payment, forgiving

qualifications. A great loan option.

Interest Only Mortgage Loans

The loan product commonly called an "Interest-Only

Mortgage" is an interest-only payment option which is

offered on fixed or adjustable rate mortgages (ARMs). The

option to pay interest-only allows you to pay only the interest

portion of your monthly payment for a period (generally

three, five, seven or ten years). At the end of that period your

loan amortizes at the remaining term of your loan. At the

amortization point, your payment will be larger than on a

standard loan because you will be rapaying the same amount

of principal over a shorter period of time. Therefore the

longer the interest-only period, the larger the new payment

will be when the interest only period ends.

Examples:

1. If a 30-year fixed rate loan of $200,000 at 6% has interest

only payments for 5 years, the payment during the interest

only period is $1000. Starting in month 61, the

payment is $1288. The fully amortizing payment (the

payment that, if maintained over the full 30 years, will pay

it off completely) would be $1200. So in order to reduce

your payment by $200 for the first 5 years, you pay an

additional $88 for the next 25 years.

2. If a 30-year fixed rate loan of $200,000 at 6% has interest-

only payments for 10 years, the payment during the interest-

only period is $1000.00. Staring in month 121, the payment

is $1432.00. The fully amortizing payment is $1200. In

order to reduce your payment by $200 for ten years, you pay

an additional $232 for the next 20 years. From these two

examples you can see that the cost is approximately double

the savings.

Interest-only payment plans are for borrowers who expect to

earn a lot more in a few years and want to maximize their

buying power now or who will invest the difference

between an interest only and an amortizing mortgage

payments, and who are confident that these investments will

make money.

ARMs with Interest-Only Payments

Interest-only ARMs operate much the same way a traditional

ARM works, with the interest rate adjusting periodically. An

interest-only ARM will have an interest-only payment that

adjusts periodically. After the initial interest only period the

loan converts to a traditional ARM or to a fixed rate.

Monthly payments are based on the interest rate, loan

balance and remaining loan term and are applied towards

principle and interest.