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Below, you will see a brief description of some loan types offered. Some of them are not used as much as others.

If you have any questions, contact us at 818-707-8899.
You can email us at roshe@planatek.net or simone@planatek.net

Loan Types:

Conforming Loan
A loan in which the amount borrowed up to $417,000

 

Jumbo Agency Loan
A loan in which the amount borrowed up to $625,500 (max loan amount varies based on the county).

 

Jumbo Loan
A loan in which the amount borrowed is greater than $625,500.

 

30 Year Fixed Rate Loan
This type of loan has 360 monthly payments that remain the same for the entire 30 year period 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”).

 

20 Year Fixed Rate Loan
This type of loan is the same as the 30 year fixed rate loan except the life of the loan is 240 months as opposed to 360 months. Since the loan is being paid slightly faster than the 30 year fixed rate loan, monthly payments for this type loan are higher than the 30 year fixed rate loan. Some Lenders allow for a lessor rate.

 

15 Year Fixed Rate Loan
This type of loan is the same as the 30 year fixed rate loan except the life of the loan is 180 months as opposed to 360 months. Since the loan is being paid faster than either the 30 year fixed rate loan or the 20 year fixed rate loan, monthly payments for this type loan are higher than the other two loans.   Generally, the longer a lender agrees to keep the interest rate “fixed”, the greater the risk to the lender, therefore, in most instances, interest rates on 15 year fixed rate loans are slightly lower than on 20 or 30 year fixed rate loans.

 

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.

 

5 Year Balloon Loan
This type of loan has fixed monthly payments for the term of the loan (five years) that are based on a 30 year repayment schedule. At the end of the five year 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 five year period that gives the borrower the option to extend the loan at a fixed rate for the remaining 25 years. The new interest rate is based upon fluctuations in an index (typically the fixed interest rate offered at that time by the Federal National Mortgage Association (60 day mandatory yield rate) and is calculated by adding a specified amount to the index (typically .625% – 1.25%). For example, if the index equals 7.0% at the time of the extension of the loan and the margin is 1.00%, the new interest rate would be 8.00%. In order to exercise this option, there are usually several conditions that must be met such as: (1) the borrower must still be the owner/occupant of the property, and (2) the borrower must be current in making monthly payments and can not have been more than 30 days late on any of the last 12 monthly payments made prior to the time the option is exercised. In addition, the option may not be available if interest rates have risen by more than 5.00% over the initial rate.

 

7 Year Balloon Loan
This type of loan is similar to the 5 Year Balloon loan except for the fact that the term of the loan is 7 years as opposed to 5 years and the refinance option at the end of the term is for an additional 23 years as opposed to 25 years. As with the 5 Year Balloon loan, the index is typically the fixed interest rate offered at that time by the Federal National Mortgage Association (60 day mandatory yield rate) and is calculated by adding a specified amount to the index (typically .625% – 1.25%). Also, as with the 5 Year Balloon, loan, the borrower must meet specified conditions to be able to take advantage of the loan extension option and the interest rate must not have risen by more than 5.00% over the initial rate.

 

Government Loan
This type of loan is guaranteed by a federal agency such as the Veterans Administration or the Federal Housing Administration or by a State agency such as a State housing authority. Such loans, however, contain income, purchase price or other eligibility requirements.

 

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.

 

6 Month Adjustable Rate Mortgage (ARM)
This type of loan has monthly payments that are based on a 30 year repayment schedule but the interest rate (and, therefore, the monthly payments) may change every 6 months (this is referred to as the “adjustment period”). The new rate is based upon fluctuations in an index (typically the One Year Treasury Security) and is calculated by adding a specified amount to the index. The amount that is added to the index is called the “margin” (typically 2.50% – 3.00%). For example, if the index equals 5.0% at the time of adjustment and the margin equals 2.75%, the new interest rate would be 7.75%. However, this type of loan program usually has limits on how much the interest rate can change (either up or down) at each adjustment date, compared with the interest rate being charged before the new adjustment is made. Typically, this limit is 1% and is referred to as an “adjustment cap”. There is also a limit as to how much the interest rate can change (either up or down) from the initial interest rate over the entire life of the loan (typically 6%) and this is referred to as a “lifetime cap”. The monthly payment changes, as needed, at each adjustment period, to reflect the adjusted rate.

 

1 Year Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 6 month ARM except for the fact that the adjustment period is every 12 months (one year) as opposed to every 6 months. In addition, the adjustment cap on a 1 year ARM is typically 2% as opposed to 1%. The lifetime cap is typically 6%. The index is typically the One Year Treasury Security index and the margin is typically 2.50% – 3.00%.

 

3/1 Adjustable Rate Mortgage (ARM)
This type of loan has monthly payments that are based on a 30 year repayment schedule and the interest rate remains fixed for the first 36 months (three years). After that time the interest rate (and, therefore, the monthly payments) may change every 12 months (one year). This is referred to as the “adjustment period”. The new rate is based upon fluctuations in an index (typically the One Year Treasury Security) and is calculated by adding a specified amount to the index. The amount that is added to the index is called the “margin” (typically 2.50% – 3.00%). For example, if the index equals 5.0% at the time of adjustment and the margin equals 2.75%, the new interest rate would be 7.75%. However, this type of loan program usually has limits on how much the interest rate can change (either up or down) at each adjustment date, compared with the interest rate being charged before the new adjustment is made. Typically, this limit is 2% and is referred to as an “adjustment cap”. There is also a limit as to how much the interest rate can change (either up or down) from the initial interest rate over the entire life of the loan (typically 6%) and this is referred to as a “lifetime cap”. The monthly payment changes, as needed, at each adjustment period, to reflect the adjusted rate.

 

5/1 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first 60 months (five years) as opposed to the first 36 months. After that time the interest rate (and, therefore, the monthly payments) may change every 12 months (one year). As with a 3/1 ARM, the index is typically the One Year Treasury Security index, the margin is typically 2.50% – 3.00%, the adjustment cap is typically 2% and the lifetime cap is typically 6%.

 

7/1 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first 84 months (seven years) as opposed to the first 36 months. After that time the interest rate (and, therefore, the monthly payments) may change every 12 months (one year). As with a 3/1 ARM and a 5/1 ARM, the index is typically the One Year Treasury Security index, the margin is typically 2.50% – 3.00%, the adjustment cap is typically 2% and the lifetime cap is typically 6%.

 

If you have any questions, contact Planatek Financial by calling 818-707-8899 or sending a fax to 818-707-7795. You can email us at roshe@planatek.net or simone@planatek.net