Loan Program Descriptions
Interest rates charged on a loan vary widely by loan program. An interest only mortgage may have a rate three percentage points, below a 30-year fixed rate mortgage. Therefore, to understand pricing you need to understand the different loan programs in the market today.
Fixed Rate
The interest rate is fixed for the length of the loan. The term of the loan is the number of years the loan amortizes over. Amortization refers to the gradual reduction in debt by periodic payments.
AccessAmerica's Fixed Rate Programs
- 30 year
- 20 year
- 15 year
- 10 year
Adjustable Rate Mortgages (ARM)
The interest rate is fixed for a specified period of time, and then adjusts based on a set schedule according to changes in some outside standard such as interest rates on U.S. Treasury securities. The specific adjustments depend on the outside standard selected and the lender's margin, the amount the lender adds to the base rate. To calculate your new interest rate after the initial fixed rate period, the margin and index is added. Interest rate indexes commonly used for ARM's are the 10 year Treasury and the LIBOR (London Interbank Offered Rate).
AccessAmerica's Adjustable Rate Programs
- 7 year ARM
- 5 year ARM
- 3 year ARM
- 1 year ARM
Balloon Loans
The loan is typically amortized over a 30 year period, but is due, or must be paid off, at the end of the initial term. During the initial term the interest rate is fixed. Some balloon loans allow the option to convert the loan to a fixed rate at maturity for a small fee.
AccessAmerica's Adjustable Rate Programs
All of Access America's Balloon loan programs amortize over 30 years and fix the interest rate during the initial term. Access America offers the following balloon loan programs:
- 7 year balloon
- 5 year balloon
Interest Only
Interest only loans require that only interest payments be made. No principal reductions are required so the monthly payment can be significantly less than a traditional fixed rate or ARM program. Because principal payments can be made optionally, this loan program offers increased flexibility for people who have fluctuating incomes or desire an increased cash flow for investing or other financial needs.
AccessAmerica's Interest Only Programs
Access America offers the following interest only loan programs:
- 5 year interest only ARM
- 3 year interest only ARM
- 1 year interest only ARM
- 1 month interest only ARM
Jumbo Loans
A loan with a balance of more than $417,000 is considered a jumbo loan. Normally jumbo loans will carry a slightly higher interest rate. If you are close to the jumbo loan limit you may want to increase your down payment to drop below the limit or use a piggyback loan.
Piggyback Loans
A piggyback, or combo loan, combines a standard first mortgage loan with a second mortgage
or home equity line of credit. Each loan has its own note and therefore its own repayment term, interest rate and monthly payment. The advantage of this loan type is it reduces your first mortgage balance, allowing you to avoid paying private mortgage insurance (insurance required on all conventional loans with Loan to Value ratios [LTVs] greater than 80%) or the jumbo loan rate increase. Other people may use this loan to increase the total amount they can borrow or allow for cash out at closing.
Example
Typical programs include the 80/10/10 or 80/15/5. The first number is the LTV of the first mortgage, the second number is the LTV of the second mortgage and the last number is the percentage of cash down. As an example, assume a borrower wants to purchase a $200,000 property using a 80/10/10 piggyback; the first mortgage balance would be $160,000, the second mortgage balance would be $20,000 and the down payment would be $20,000. The borrower was able to borrower $180,000, 90% LTV, and avoid private mortgage insurance.
No Document or Stated Income Loans
These loans allow borrowers to secure financing without having to provide the lender certain documents such as tax returns, pay stubs, bank statements, etc. These products typically carry a higher interest rate and/or higher closing costs.
AccessAmerica's Specialized Loans
- Stated Income
- No Income No Assets