Types of Loan Programs: Conforming, Jumbo Loans, FRM, ARM, Balloon Mortgage, what is an arm


what is an arm mortgage

What is an arm mortgage

What is an arm mortgage

What is an arm mortgage

What is an arm mortgage

Types of Mortgage Loans

Conventional and Government Loans

Any mortgage loan other than an FHA, VA or an RHS loan is conventional one.

The Federal Housing Administration (FHA), which is part of the U.S. Dept. of Housing and Urban Development (HUD), administers various mortgage loan programs. FHA loans have lower down payment requirements and are easier to qualify than conventional loans. FHA loans cannot exceed the statutory limit. Go to FHA Programs page to get more information.

If you are looking for an FHA home loan right now, please feel free to request personalized rate quotes from HUD-approved mortgage lenders via our website.

VA loans are guaranteed by U.S. Dept. of Veterans Affairs. The guaranty allows veterans and service persons to obtain home loans with favorable loan terms, usually without a down payment. In addition, it is easier to qualify for a VA loan than a conventional loan. Lenders generally limit the maximum VA loan to $203,000. The U.S. Department of Veterans Affairs does not make loans, it guarantees loans made by lenders. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a VA loan.

VA-guaranteed loans are obtained by making application to private lending institutions. If you are interesting in obtaining a VA-guaranteed loan you can try our VA loan request form.

Please see also pamphlets published by VA.

RHS Loan Programs

The Rural Housing Service (RHS) of the U.S. Dept. of Agriculture guarantees loans for rural residents with minimal closing costs and no downpayment. Visit our page RHS programs for details.

Ginnie Mae which is part of HUD guarantees securities backed by pools of mortgage loans insured by these three federal agencies – FHA, or VA, or RHS. Securities are sold through financial institutions that trade government securities.

State and Local Housing Programs

Many states, counties and cities provide low to moderate housing finance programs, down payment assistance programs, or programs tailored specifically for a first time buyer. These programs are typically more lenient on the qualification guidelines and often designed with lower upfront fees. Also, there are often loan assistance programs offered at the local or state level such as MCC (Mortgage Credit Certificate) which allows you a tax credit for part of your interest payment. Most of these programs are fixed rate mortgages and have interest rates lower than the current market.

Conventional loans may be conforming and non-conforming. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, like Ginnie Mae, provide a continuous flow of affordable funds for home financing that results in the availability of mortgage credit for Americans.

Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties. Fannie Mae and Freddie Mac announces new loan limits every year.

The national conforming loan limit for mortgages that finance single-family one-unit properties increased from $33,000 in the early 1970s to $417,000 for 2006-2008, with limits 50 percent higher for four statutorily-designated high cost areas: Alaska, Hawaii, Guam, and the U.S. Virgin Islands. Since early 2008, a series of legislative acts have temporarily increased the one-unit limit to up to $729,750 in certain high-cost areas in the contiguous United States. Permanent limits, which apply to the Enterprises’ acquisitions of certain mortgages originated prior to July 1, 2007, are set under the terms of the Housing and Economic Recovery Act of 2008 (HERA).

For every county and county-equivalent in the country, maximum loan limits for mortgages can be found at: http://www.fhfa.gov/Default.aspx?Page=185

The 2013 conforming loan limits for first mortgages remain at the limits set in 2006, 2007, 2008, 2010 and 2011:


30-Year Fixed vs, what is arm mortgage.#What #is #arm #mortgage


30-Year Fixed vs. 5/1 ARM

What is arm mortgage

Here we go again…it’s that special time where I compare two popular loan programs to see how they stack up against each other. Today’s match-up: “30-year fixed vs. 5/1 ARM.”

Everyone has heard of the 30-year fixed-rate mortgage – it’s far and away the most popular type of loan out there. Why? Because it s the easiest to understand, and presents no risk of adjusting during the entire loan term.

But what about the 5/1 ARM? Do you even know what a 5/1 ARM is? What the heck is that slash doing there!? It looks confusing.

What is arm mortgage

Put simply, the 5/1 ARM is an adjustable-rate mortgage with a 30-year term that’s fixed for the first five years and adjustable for the remaining 25 years. That means it s a hybrid ARM. Partially fixed, and partially adjustable.

After the first five years are up, the interest rate can adjust once annually, both up or down. That s the 5/1 broken down for you. Disregard that pesky slash.

It’s a pretty popular ARM product, if not the most popular. And just about all mortgage lenders offer it, including ING, via its Easy Orange Mortgage.

5/1 ARM Rates Are Lower. That s the Draw

What is arm mortgage

Well, the biggest advantage to the 5/1 ARM is the fact that you get a lower mortgage rate than you would if you opted for a traditional 30-year fixed.

As you can see from the chart I created above, the 5/1 ARM is always cheaper than the 30-year fixed. That s the trade-off for that lack of mortgage rate stability.

But how much lower are 5/1 ARM rates? Currently, the spread is 0.63%, with the 30-year averaging 3.78 percent and the 5/1 ARM coming in at 3.15 percent, per Freddie Mac data.

Since Freddie began tracking the five-year ARM back in 2005, the spread has been as small as 0.27% and as large as 1.30% in 2011.

If the spread were only 0.25%, it d be hard to rationalize going with the uncertainty of the ARM. Conversely, if the spread were a full percentage point or higher, it d be pretty tempting to choose the ARM and save money for at least 60 months.

Let s look at an example of the potential savings:

Loan amount: $350,000

30-year fixed monthly payment: $1,626.87

5/1 ARM monthly payment: $1,504.08

So you’d be looking at a difference in monthly mortgage payment of roughly $122, or $1,464 annually ($7,320 over 5 years), using our example from above. Not bad, right?

You d also pay down your mortgage faster because more of each payment would go toward principal as opposed to interest. So you actually benefit twice. You pay less and your mortgage balance is smaller after five years.

After five years, the outstanding balance would be $315,427.87 versus $312,017.26 on the five-year ARM. That s roughly another $3,400 in savings for a total benefit of nearly $11,000.

Discussion over, the ARM wins! Right? Well, there’s just one little problem

It might not always be this good. In fact, you might only save money for the first five years of your 30-year loan.

After those initial five years are up, you could face an interest rate hike, meaning your 5/1 ARM could go from 3.25 percent to 4.50 percent or higher, depending on the associated margin and mortgage index.

ARMs Are Cheap But Will Likely Head Higher

Currently, mortgage indexes are super low, but they’re expected to rise in coming years as the economy gets back on track, which it will eventually.

And you should always prepare for a higher interest rate adjustment if you’ve got an ARM. In fact, lenders typically qualify you at a higher rate to ensure you can make more expensive payments in the future should your ARM adjust higher.

So that’s the big risk with the 5/1 ARM. If you don’t plan to sell or refinance before those first five years are up, the 30-year fixed may be the better choice.

Although, if you sell or refinance within say seven or eight years, the 5/1 ARM could still make sense given the savings realized during the first five years. And most people either sell or refinance within 10 years.

Just be sure you can actually handle a larger monthly mortgage payment should your rate adjust higher. And realize that refinancing won t always be an option you may not qualify, or rates may be too expensive to justify a refi. It s never a guarantee.

If you actually plan to pay off your mortgage, an ARM could be a bad idea unless you seriously luck out with rate adjustments. Or you serially refinance and pay extra to shorten the amortization period. Otherwise, there s a good chance you ll pay a lot more than you would have had you gone with the 30-year fixed.

Why? Because each time you refinance to another ARM, you re getting a brand new 30-year term. That means more interest is paid over a longer period of time, even if the rate is lower.

However, if you’re a savvy investor and have a healthy risk-appetite, the 5/1 ARM could mean some serious savings, especially if the extra money is invested somewhere else with a better return for your money.

Five years not enough for you? Check out the 30-year fixed vs. the 7-year ARM, which provides another two years of interest rate stability. The rate may not be as low, but you ll get a little more time before that first rate adjustment.


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Current Mortgage Rates Today

Current Mortgage Rates – Mortgage Rates Today

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Mortgage 101: A Mortgage Resource Guide

This guide will help first-time home buyers and seasoned veterans get the information they need to make the correct financial decision regarding their mortgage. Our goal is to provide information and resources for everything you need to know about the mortgage process. Whether you are shopping for your first home or you are already established in a existing home, this page can be your guide. Take the necessary steps to make purchasing your first home or maintaining your existing home a seamless [Read More. ]

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Imploded* Lenders™

About The Implode-o-Meter

ML-Implode.com was created in late 2006 to raise the alarm about the then-burgeoning implosion of the historically-epic housing and economic bubble. Started as a modest web page created by founder Aaron Krowne, this objective was achieved by, uniquely, tracking the in-progress implosion of independent mortgage lending companies then being ignored by a mainstream media in denial of even the existence of the housing bubble. At that time, you were more likely to hear a partyline of “housing always goes up” and juvenile jeers of “bubbles are for bathtubs” from TV’s talking heads, than of even slight concern about a clearly-overextended, already-frozen housing market.

Operated as a broadly-open community forum, ML-Implode quickly took the lead in news about the mortgage implosion and subprime crisis, as industry professionals flocked to the site to share and find out the latest. The site even became, in part, a whistleblower platform, fighting (and winning) half a dozen lawsuits to defend the right of its contributors to post about corruption and malfeasance in financial companies, and be able to do so confidentially.

Despite its initial incarnation being rendered insolvent by these frivolous legal attacks, ML-Implode continues today in a stripped-down, lean-and-mean embodiment, remaining dedicated to tracking the fallout of the 2007-2008 credit crisis. This mission includes keeping tabs on recession/depressionary conditions, the policy response to the economic downturn and continued financial instability, the Fed and other global central bank interventions (including “ZIRP” and quantitative easing), actions and reforms of the monetary authorities, market manipulation (official and private sector), all global geopolitical conflict with economic roots, the evolution of the banking and monetary system (including dollar-alternative “reserve currencies”, gold, silver, and bitcoin and other “virtual currencies”), the effect of the economic turmoil on society, basic themes of economic fairness and justice, and much more.

We continue to doggedly watch all of these interconnected topic areas, daily picking the most important stories and commentaries, and bringing them together in a convenient and comprehensible form on this site. If you share our concerns, utilize one of the icons at the top of this page to “follow” us by twitter, RSS, email, and more.

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Current Mortgage Rates in Quebec – Find the Best – Lowest Today, what is the


Current Mortgage Rates in Quebec

We shop the most competitive brokers, lenders and banks in Quebec to bring you today’s lowest interest rates, free of charge! Our comparison charts list current Quebec rates, and are updated on a daily basis. To compare a certain category, click on the “See All” button for more details.

Best Mortgage Rates in Quebec

Ratehub.ca compares mortgage rates across Quebec to find you the lowest possible mortgage rates in the province. We check mortgage brokers, banks, credit unions, and private mortgage lenders to find you the cheapest mortgage solutions.

Why should I compare mortgage rates in Quebec?

No mortgage is just like another. Depending on which bank, credit union, or private lender created the mortgage – and who it was intended for – the rates, terms, and conditions could be very different. If you want the best mortgage for your special needs you need to understand all of your options.

Should I get an open or closed mortgage rate in Quebec?

Closed and open mortgages differ in their repayment options. In a closed mortgage, payments made above and beyond your regular monthly payment price are restricted to set levels. Closed mortgages often have lower interest rates.

Open mortgages allow borrowers to repay as much of the principal as they choose – at any time. This greater flexibility comes with the price of higher interest rates.

What is the difference between a variable vs. fixed mortgage rate in Quebec?

The popular choice for a mortgage in Quebec is the fixed interest rate mortgage. The fixed interest rate is set for the term of the mortgage without fluctuation. This allows borrowers to know exactly what their mortgage payments will be each month, making household planning stable.

A variable rate mortgage, chosen by approximately one third of all Quebecers, has an interest rate that is tied to prime. As the prime rate fluctuates, so does the mortgage interest rate. This interest rate fluctuation affects the monthly payment. While most variable mortgages have lower interest rates at the start of a mortgage term, they are not as popular as their fixed counterparts because of this instability.

What are prepayment options?

Prepayment options are the terms that define how much of an increase can be made to your monthly mortgage payment, or how large of a lump sum payment is able to be made towards your principal. These increases are based on a set percentage – when payments are made over and above these allowable percentages, interest based penalties will be applied to your mortgage.

What is the mortgage ratehold?

A ratehold allows you to lock into an interest rate for a certain number of days before your mortgage is actually renewed or closed. The renewal date is the date on which the term of mortgage expires, not to be confused with the amortization period . A rate hold allows you to take advantage of favourable rates today, while still taking advantage of possible lower rates closer to your closing date.

Quebec Housing Market Forecast 1

Quebec’s economy is growing. This, combined with continued low interest rates, and an increasing population will continue to boost the housing market. Strong consumer spending and investment will increase the economy’s strength and drive job creation up. As the population ages there will be changes in the needs of many households which will increase resale transactions across the province.


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How to Get Your Best Mortgage Rate

Trying to get your best mortgage rate is often frustrating. You are about to ask for more money than you’ve seen in your life. Your hopes and dreams are riding on a stranger’s decision.

Thank you, thank you, THANK YOU — for alllll the detailed and useful information you make available to us! You’re invaluable Deborah M. from St. Louis

What is the mortgage rate

For many, the thought of applying for a mortgage is nerve wracking because the process can feel mysterious.

Hi, my name is Kate. I am also known as Ask Kate and Super Kate. I author this free informational website to answer mortgage questions and make sense of the bewildering home loan process.

Let me put your mind at ease. You see, as a former mortgage broker for more than 20 years, I helped people finance their homes. As you can imagine, I became very adept at solving problems!

So even though your banker’s lingo may be unfamiliar, I know how to translate the secret language of mortgage lending. Welcome to my website. I will be your guide!

Kate’s Mortgage Basics

Let’s start with the fundamentals.

Kate’s Tips and Techniques

Many of the following techniques are the exact methods I used when I originated mortgages for my borrowers. You are invited to use them too.

Ask Kate About Your Mortgage

Ask Kate is a question and answer forum. It’s also become the heart and soul of Get Your Best Mortgage Rate. People with questions write to me and I respond with personalized answers. Afterward, I publish the letters on this website for the benefit of all.

What is the mortgage rate

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What is the mortgage rate


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Option Arm Mortgages

What is arm mortgage

The option arm loan program was one of the most popular mortgage choices for borrowers in the United States during the lead up to the mortgage crisis thanks to its forgiving payment flexibility.

This same payment flexibility also made it one of the most scrutinized loan programs in history because of its misleading ability to qualify borrowers for a home they truly couldn t afford.

It was offered by some of the biggest former mortgage lenders, including Countrywide Mortgage and Washington Mutual, both of which failed during the Great Recession. I believe Bear Stearns also offered the product. They also failed.

What Is An Option Arm?

The option arm, or pick-a-pay mortgage, is a monthly adjustable rate mortgage tied to one of the major mortgage indexes, including the LIBOR, MTA, or COFI. The program allows a borrower to pay off their loan balance using four payment options, including the following:

15 year term payment (Principal and interest)

30 year term payment (Principal and interest)

Interest-only payment (Usually available first 10 years)

Minimum monthly payment (Negative amortization payment)

In other words, borrowers can make the standard 30-year fixed payment, an accelerated 15-year fixed payment, a 30-year interest-only payment, or a negative amortization payment.

That last option was what got a lot of homeowners into a lot of trouble. It allowed homeowners to pay less than the total amount of interest due, thereby pushing many borrowers into an underwater position.

Most Option Arm Holders Make the Minimum Payment

Most borrowers select the option arm for the minimum payment option, otherwise known as the negative amortization option. The minimum payment option allows a borrower to pay monthly mortgage payments that are significantly less than the actual interest rate.

The minimum payment on most option arm programs is 1% fully amortized. It seems like a great deal, but every time the borrower elects to makes the minimum payment, the difference between the minimum payment and the interest-only payment is tacked onto the balance of the loan.

A borrower can pay the minimum payment until the loan balance reaches 110-115% of the original loan balance, depending upon the rules of the issuing bank or mortgage lender. This allows the typical borrower to pay the minimum payment for roughly the first five years of the life of the loan.

After the borrower reaches 110-115% of the original loan balance (110-115 LTV), they will lose the minimum payment option, leaving them with the three remaining payment options. After ten years from the start of the loan, the interest-only option typically goes away as well, and the borrower must pay using one of the two remaining payment options.

Typical option arm programs do not have any caps aside from the lifetime cap of say 9.95%, and the minimum payment generally increases 7.5% each year until it is no longer an available option.

You re Deferring Interest with an Option Arm

What many borrowers may not understand is that paying the minimum payment each month is simply a way of deferring interest, not avoiding it altogether. By making the minimum payment each month, the accrued interest eventually stacks up against the borrower, while effectively building zero home equity.

And after five years of paying the minimum payment, the borrower would have a loan balance above their original balance without the flexibility of the minimum payment option.

This makes the option arm a dangerous choice for homeowners, as once the minimum payment option disappears the borrower has no choice but to pay the interest-only payment. And many borrowers will likely have trouble making the interest-only payment after relying on a much lower minimum payment during earlier years.

The only saving grace to this program is housing appreciation and leverage. While the market was hot, real estate investors were using option-arms to keep cash in their pockets, banking on appreciation until they resold the home years, or even months later.

But once every one and their mother was using this type of loan, trouble started brewing. It probably should have never been introduced to the masses.

1 Month LIBOR index: 5.330

Fully indexed rate: 7.980%

Loan amount: $400,000

15 year term payment (Principal and interest) = $3,817.99

30 year term payment (Principal and interest) = $2,929.48

Interest-only payment (Usually available first 10 years) = $2,660.00

Minimum monthly payment (Neg-am payment) = $1,286.56

Minimum monthly payment Year 1 = $1,286.56

Minimum monthly payment Year 2 = $1,383.05

Minimum monthly payment Year 3 = $1,486.78

Minimum monthly payment Year 4 = $1,598.29

Minimum monthly payment Year 5 = $1,718.16

Typical five-year interest-only adjustable rate mortgage at 6.75% is $2,250.00.

Monthly savings making the minimum payment = $963.44

As you can see, the minimum payment is dramatically lower than the interest-only payment, but it won t be around forever. And the minimum payment increases each year, as well as the accrued interest.

I ve seen a lot of lender commercials lately offering option-arm programs under the guise of names such as Super-Saver program and Smart Option . They tend to highlight the benefits, mainly the cost savings without mentioning the negative implications.

The newest option arm program now is the so-called assured option arm , also known as a five-year fixed option arm mortgage. It combines the safety of a five-year fixed product with the flexibility of an option arm. It can be useful for the same reasons I mentioned above, with the security of a fixed interest rate for a small time period. But it s still a risky loan product, and one that should be approached cautiously as well.

All that said, the option arm program definitely has the potential to save homeowners money, and keep money in their pocket during hard times, but it should be approached cautiously.

A loan officer or mortgage broker may recommend the option arm program as a way to keep your payments down, but if you don t feel you can make the interest-only payments in the future, and eventually the much higher fully amortized payment, it s probably best that you look for something more conventional.

If you can t make the fully amortized payment, you don t really qualify for the home loan. Bottomline.

Option Arms Banned Post-Crisis

In early 2014, the Consumer Financial Protection Bureau (CFPB) enacted the Qualified Mortgage (QM) rule, which required lenders to stop making mortgages with what they referred to as harmful loan features.

One of these features turned out to be negative amortization, meaning the option arm as we knew it was a thing of the past. Lenders get certain legal protections if they make loans that abide by the QM rule, and as such most loans are now QM loans.

However, it s still possible for a lender to offer a similar product in the future, but it s doubtful because they ll be assuming more risk. And we all know these are risky loans.

In summary, the option arm will go down in history as one of the most infamous loan programs of all time. One could easily argue that they did a lot more harm than good, and were probably one of the main reasons everything fell apart.