Types of Loan Programs and Loan Features

Fixed Rate

ARM (Adjustable Rate Mortgage)

Interest Only

Combo Loan

Balloon Payment

Pre-payment Penalties

Fixed Rate

Your rate is fixed and does not change for the life of your loan. A fixed rate will guarantee that your payments will be the same each month for the duration of the loan

ARM (Adjustable Rate Mortgage)

Your rate will be fixed for a short period at the beginning of your loan, after which the rate will become adjustable and will adjust every 3-12 months according to the market. You and your loan officer will decide the terms of your ARM loan before you close, so you'll know how often your rate will adjust.

Interest Only

You pay only on the interest, and not on the principle. Your interest only period will last anywhere from 2-15 years. After the interest only period is up, your loan becomes fully amortizing, which means your principle and interest will be divided into equal payments for the duration of the loan.

Combo Loan

Two loans that close simultaneously. If you're looking for a loan over 80% LTV (loan-to-value), chances are your loan officer will suggest going with a 1 st and a 2 nd mortgage. This is to avoid mortgage insurance, which lenders generally require on any loan over 80% LTV.

Balloon Payment

Most lenders will give you a lower rate for making equal payments for part of a loan and one big payment at the end of the loan. The most common is called a 30/15 - the loan is amortized over 30 years, but called due in 15 years. Balloon mortgages are made with the assumption that the borrower plans to sell or refinance the property before the mortgage is called due. One disadvantage to the balloon payment option is that you may be required to sell or refinance in a less-than-ideal market.

Pre-payment Penalties

Lenders will offer lower rates in exchange for a pre-payment penalty, which can be "soft" or "hard" and last from 1 to 3 years. A "soft" pre-payment penalty means that you can sell your home with no consequences. However, if you try to refinance, you will be charged an amount that has been agreed upon. A "hard" pre-payment penalty requires that you pay the fee whether you refinance or sell your home.

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