Bozeman Home Mortgage Types To Consider†
Mortgage Type 1: FRM – Fixed Rate Mortgage Financing
The Fixed Rate Mortgage (FRM) almost died out but has made a strong comeback in light of the subprime meltdown of the mid-2000s. Fixed Rate loans offer fixed payments that only change when taxes or insurance coverage changes. A client can get a rate break of about 2% by choosing a shorter maturity, 15-year home loan, but payments will be higher.
Consequently, a client would not qualify for the same home loan amount as a 30-year FRM, and would have to accept a lower Bozeman home loan amount. Under the current rates, these home loans perform best over the long run since rates can vary greatly on Adjustable Rate Mortgages.
Mortgage Type 2: ARM – Adjustable Rate Mortgages
The Adjustable Rate Mortgage (ARM) has been around for over 20 years. ARMs are an alternative to fixed rate financing. Initial rates begin as much as 4% lower, compared to fixed rate home loans. A typical one-year ARM has a 2% annual cap and a 6% life cap over the initial rate, which is adjusted annually in concert with a national index that reflects current interest rates.
At adjustment, this program employs the current index rate and adds a margin that generally varies around 2.5% to 2.7%. So be careful choosing an ARM. These loans are attractive for properties that will be sold in 4 to 5 years because a large sum of cash flow can be saved during the first two years. Under some circumstances, these real estate loans can even help a client qualify for a larger home loan because of the lower initial rates.
The FHA, Federal Housing Administration, has an attractive ARM program offering more protection to a homeowner. The program offers a 1% annual cap and a 5% life cap. Although based on the same index as conventional ARMs, the margin is much lower at 2.0 – 2.25%.
Mortgage Type 3: Balloon Loan
Balloon Loans serve as an alternative to ARM’s and fixed rate programs, but demand careful consideration prior to application. These home loans are fixed for 5 to 7 years at a lower rate when compared to fixed rate home loans, and, remember, their payments are amortized over 30 years. A 7-year program saves .375% annually and a 5-year program saves .75% annually compared to a 30-year fixed rate.
These real estate loans are due in full at the end of 5 to 7 years, although a client could (with restrictions) roll the home loan over to a fixed rate (plus 2%) at the maturity date. These are real estate loans for individuals who will hold properties for 3 to 7 years and who prefer fixed rate financing at lower rates.
Other Bozeman Home Mortgage Loan Types
Mortgage Type 4: Interest-Only Loan
Mortgage Type 5: VA Loans:
VA Loans are for Armed Services Veterans (sometimes spouses), require no down payment, and are guaranteed by the Department of Veteran’s Affairs.
Mortgage Type 6: FHA Loan
FHA Loans are guaranteed by the US Federal Housing Administration (FHA), have lower down payments than most other mortgage loans, and include mortgage insurance.
Mortgage Type 7: Piggyback/Combo Loan
Mortgage Type 8: Jumbo Loan
†Note: The information above is not guaranteed by Taunya Fagan Real Estate or ESTATE House brokers or agents. Check for prepayment penalties under FNMA guidelines. Most loans are based on simple interest calculations. Most Adjustable Rate mortgage (ARM) loans may be assumed with restrictions under their original terms. Usually, Fixed Rate Mortgages (FRM) and Balloon programs are unassumable.