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Loan Descriptions
Below, you will see a brief description of the many types of mortgage loans. Some of them are not used as much as others.
This just a small sample of the available loan programs that we have to offer.
We understand that each borrower is unique and that is why we strongly encourage
our clients to meet with us for a free mortgage consultation to make sure the
loan program that you choose is the one that best fits your family and financial
situation.
If you have any questions, just click "Contact Us"
on the left. You can contact
Fidelity Bank by calling
(515) 490-2222 or sending a fax to
(866) 637-0577
. You can email us at
Amber.Lampe@Fidelity-Bank.com.
Conforming Loan
A loan in which the amount borrowed is less than or equal to
$417,000
(this number could be different depending on the bank)
Jumbo Loan
A loan in which the amount borrowed is greater than
$417,000
(this number could be different depending on the bank)
Fixed Rate Loans
This type of loan has monthly payments that remain the same for the entire
loan term after which time the loan is paid in full. The monthly
payment is based on an interest rate which does not change over the term of
the loan (hence the term "fixed rate"). Fixed rate loans are typically 30,
15 & 20
year terms.
Adjustable Rate Mortgage (ARM)
The interest rate on an ARM may vary up or down at fixed intervals. The changes
are tied to a financial index such as one year Treasury notes. The ARM often
offers a low beginning interest rate as a "teaser". However, this rate will
go up after a certain time. If interest rates are low, an arm may be a good
option. This is especially true if its cap (the highest interest you may be
charged) is not more than a few points higher than the current interest rate.
ARMs are of special interest to buyers who know their income will rise in the
future or who don't plan to own the home for many years. Arm Loan Programs
are available for a variety of terms. Typical terms are 1, 3, 5 and 7 years.
Interest Only Loan
A mortgage is "interest only" if the monthly mortgage payment does not include any repayment of principal for some period. The payment consists of interest only. During that period, the loan balance remains unchanged.For example, if a 30-year fixed-rate loan of $100,000 at 8.5% is interest only, the payment is .085/12 times $100,000, or $708.34. Otherwise, the payment would be $768.92. This is the "fully amortizing payment" - the payment that, if maintained over the term of the loan, will pay it off completely. The interest only loan thus reduces the monthly payment by 7.9%. A loan that is interest-only for the full term would not amortize. The loan balance would be the same at term as it was at the outset. Back in the twenties, loans of this type were the norm. Borrowers typically refinanced at term, which worked fine so long as the house didn't lose value and the borrower didn't lose his job. But the depression of the thirties caused a large proportion of these loans to go into foreclosure. Lenders stopped writing them and have never brought them back. They want loans that eventually amortize. Hence, the interest only loans of today are interest only for a specified period, such as 5 years. At the end of that period, the payment is raised to the fully amortizing level. In such case, the new payment will be larger than it would have been if it had been fully amortizing at the outset. Suppose, for example, the interest only period on the loan described above is 5 years. Then the payment starting in month 61 would be $805.23. To reduce the payment by $60.58 for the first 5 years, the borrower would pay an additional $36.31 for the next 25. The longer the interest only period, the larger the new payment will be when the interest only period ends. If the same loan is interest only for 10 years, for example, the fully amortizing payment beginning in month 121 is $867.83. To reduce the payment by $60.58 for the first 10 years, the borrower would pay an additional $98.91 for the next 20. Interest only mortgages are for borrowers who want a lower initial payment, and have some confidence that they will be able to deal with a payment increase in the future.
Balloon Loans
This type of loan has fixed monthly payments for the balloon term of
the loan that are based on a 30 year repayment schedules.
At the end of the balloon term, the outstanding principal balance
of the loan is due plus any unpaid interest.
This loan program generally has a refinance option at the end of the
balloon period that gives the borrower the option to extend the loan
at a fixed rate for the remaining term. Balloon loans are typically
5 and 7 year terms.
FHA Loans
An FHA refinance mortgage or FHA loan allows for the refinance or purchase of a home with a low down payment. The FHA has a variety of options for people want to buy, refinance or improve a home. It’s wrong to assume FHA loans are aimed only at first time home buyers looking for traditional suburban homes--FHA insured loans are as diverse as the housing market itself.
That said, FHA mortgages for first-time home buyers are definitely available for qualified applicants. These loans are for up to 96.5% financing–a 3.5% down payment minimum is required.
FHA loan applicants are allowed to finance the required upfront mortgage insurance premium into the mortgage, and the loan can be for one-to-four unit structures depending on borrower eligibility and other circumstances.
Construction Loan
This type of loan is used to finance the construction of a home. It may or may not also include the purchase of the land upon which the home is to be built. Unlike a mortgage loan where the entire amount of the loan is disbursed to the borrower at the time the loan transaction is consummated, a construction loan involves a series of disbursements which are linked to a construction schedule. Some construction loans have fixed interest rates, others have variable interest rates. In addition, some construction loans automatically convert to a regular mortgage (referred to as "permanent" financing) once construction has been completed, while others require another loan transaction to take place so the borrower can payoff the construction loan and obtain permanent financing.
If you have any questions, just click "Contact Us" on
the left. You can contact
Fidelity Bank
by calling
(515) 490-2222
or sending a fax to
(866) 637-0577. You can email us at
Amber.Lampe@Fidelity-Bank.com.
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