Mortgage Products
The mortgage process doesn’t have to feel like learning a foreign language. Get educated about your options and the process will be less painful. Here’s some basic information about the types of mortgage loans out there. A Topdot mortgage specialist can answer any questions you have and recommend what mortgage is best for you.
Fixed Rate Mortgage
Fixed rate mortgages (FRM) are the most common type of mortgage. The name pretty much says it all: In an FRM, the interest rate remains the same for the duration of the loan. They are not affected by fluctuating market rates. Many people are familiar with the popular 15- and 30-year fixed rate mortgages, but there are actually many types of fixed rate mortgages to choose from.
FRMs may be right for those who:
- Plan on owning the property long-term (at least 7 years)
- Like to know exactly how much they will be paying each month
- Currently have a high-interest adjustable rate mortgage (ARM)
Adjustable Rate Mortgage
In an adjustable rate mortgage (ARM), after an introductory fixed period, the interest rate fluctuates depending on the market. ARMs typically have a lower monthly interest rate and payment during the introductory fixed portion of the loan. After the “first adjustment,” the rate goes up and is subject to market fluctuation.
ARMs may be right for those who:
- Plan on selling the property or refinancing within 7 years.
- Don’t qualify for an FRM.
- Expect their income to rise over the next few months.
Interest-only Mortgage
An interest-only mortgage requires that you make only the interest payments on your loan for a specified period of time. By not having to pay principal, this can mean extremely low initial monthly payments. However, you will not be reducing your principal balance. The interest-only feature is available on FRMs and ARMs
Interest-only mortgages may be right for those who:
- Increase their monthly cash flow for the near-term.
- Plan on selling the property or refinancing within 5 – 10 years.
Federal Housing Administration (FHA) Direct Loans
FHA Direct Loans allow Topdot to offer extremely competitive financing options to clients that may fall short of "conforming" or "sub-prime" guidelines. This is the opposite of predatory lending. These loans carry low interest rates on fixed terms and do not allow for prepayment penalties. Whether it be credit score or tradelines, FHA loans allow for a true "common sense" approach to underwriting and will offer much lower rates than most other programs.
FHA Loans may be right for those who:
- Are a first time homebuyer
- Have less than perfect credit
- Have limited funds for down payment
- Fall short of meeting the typical "conforming" or "subprime" guidelines
Home Equity Loans
A home equity loan is actually a second mortgage. It allows you to tap into your equity without changing the terms of your first mortgage. People take out a home equity loan for many different reasons including debt consolidation or to pay for home improvements, school, a new business, etc. You decide the amount of money you want to borrow, and then apply for approval. With the many home equity loan programs available today, you can borrow up to 100% of your home’s equity. Typically, home equity loans have a fixed rate with a term of 10 to 30 years.
Home equity loans may be right for those who:
- Wouldn’t benefit from cash-out refinancing
- Want to pay for a large, one-time expense.
- Want to borrow against a property they own with someone else, without the other person incurring additional debt.
Home Equity Line of Credit (HELOC)
A HELOC is a mortgage, usually secured as a second or junior lien against the property. Initially, there is a draw period during which the HELOC behaves like a credit card, except the security for the note is your home. You can pay it off, pull more money out, or make partial use of the total available money at any point. An added benefit, unlike credit cards is that the interest is usually tax-deductible and the rate is usually much lower. You can choose to take the entire amount in one lump sum at closing or draw on it like a checking account. You pay interest only on the portion that you draw. HELOC rates are tied to the prime rate and are variable.
HELOCs may be right for those who:
- Wouldn’t benefit from cash-out refinancing.
- Don’t know exactly how much cash they need, but would like to have available cash down the road.
