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Interest Only Mortgage
Conventional mortgages fall into several categories:
- Fixed conventional mortgages- Term is for 15 or 30 years although it is common
to set another term. Interest rate will not change for the life of the
- Balloon conventional mortgages- 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 a
rising 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. If your plans change and you do
stay in the property, there is a "conditional right to refinance"
at the end of the fixed period. As
your cost is usually $250 to "reset" the loan, far less that the typical
for a refinance. 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 are our
Alternative conventional mortgages. Email me with questions on
Conventional Mortgages vs. Jumbo Mortgages
The conforming limit is a mortgage 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, 80/15/5
or 80/20. Every situation is different, but it is one
more option to consider.
I have included a page on how to calculate your
conventional mortgages qualification ratios.
I have included a page on
conventional mortgages documentation
Read more about Conventional
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
Certified Mortgage Planning
Specialist, I offer an analysis of
your situation today can make suggestions on how small changes in how
your consumer debt is structured today can have a life changing effect in the years
to come. Read more
about this free, no obligation service.
Prequalify for your Conventional