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Conventional loans fall into several categories:
- Fixed- Term is for 15, 30, or 40 years. Interest rate will not change for the life of the
- Balloons- The fixed term is for 5 or 7 years with the rate changing
once at the
end of the fixed period to another fixed for the remainder of the term.
Expressed as 5/25 or 7/23, balloon loans are useful in arising rate market as rates are often below the 30
year rate. Balloons can also be a good choice if you expect to remain in a
property for less than the fixed period. Balloons have been restricted to conforming limit but some lenders are
available for higher amounts.
- ARMs- Adjustable Rate Mortgages have a fixed rate for a period usually 1, 3, 5, 7, or 10 years
with an annual rate
adjustment. They are usually expressed as 1/1, 3/1, 5/1, etc. Following the
initial fixed period, the new rate is determined by adding a margin to an index. For example, a common index is the 1 year Treasury Weekly
Index. If your ARM has a margin of 2.750 (margins can vary from 2.500 to
3.000 depending on lender and product) and the index was at 5.33 your new
rate will be 8.080%. ARMS, like balloons, can be a viable option if you
select a term appropriate for your plans. Also, I have several
clients who have adopted a strategy where they determined that
the low rate associated with a 1 year ARM saves them more money than the
cost of an annual refinance. It may be worth looking at to see if it works
for you. New is our ARM
Alternative conventional loans. Low start rates with the security of a fixed rate.
Conforming vs. Jumbo
The conventional loans conforming limit is an amount set by Congress and is the maximum loan
size eligible for purchase by either Fannie Mae or Freddie Mac, two Federally
chartered organizations who purchase the underlying securities from mortgage
originators. Those funds are reinvested in new mortgages completing the flow of funds
The current conforming limit is set at $417,000. Any loan amount above that
figure is considered a Jumbo loan and is often subject to an interest rate pricing premium as well as to some additional underwriting restrictions. A common
strategy to lower overall interest costs if your purchase or refinance balance
is above $417,000 is to use a combination of both first and second trust money,
referred to as an 80/10/10 conventional loans, 80/15/5
or 80/20. Every situation is different, but it is one
more option to consider.
We offer you the ability to qualify and close into several
unique programs which accommodate borrowers with non traditional income or asset
situations. Please visit my No Documentation
Many of my clients are converting from fully amortizing payments to an
only conventional mortgage loan approach with a significantly lower monthly payment. I have some
extensive information available. Read more to see if this powerful tool could
work for you.
I have included a page on how to calculate your
conventional loans qualification ratios.
I have included a page on
conventional loans documentation
Read more about Conventional
I also have a report "Buying your First
Home" available by email.
I have an article "Buying
your home in 2008" by email explaining negotiating strategy in today's
* I have included a
section on the new Cash Flow ARM. A LIBOR based
product which gives you complete flexibility in managing your mortgage.
As a Certified Mortgage
Planning Specialist, I offer an analysis of
your situation today can make suggestions on how small changes in how
your consumer and mortgage debt is structured today can have a life changing effect in the years
to come. Read more
about this free, no obligation service.