Which Loan Program is right for me?

There isn't a single or simple answer to this question. The right type of mortgage for you depends on many different factors:

• Your current financial picture
• How you expect your finances to change
• How long you intend to keep your house

• How comfortable you are with your mortgage payment changing  

For example, a 15-year fixed rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but your payments could get higher when the interest rate changes.

The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage professional.

 Fixed Rate Mortgages

The most common type of mortgage program where your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.

Fixed rate mortgages are available for 30 years, 20 years, 15 years and even 10 years.

Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. The most common fixed rate loans are 15 year and 30 year mortgages.

Click HERE to view different Fixed Rate Mortgage options.

 Adjustable Rate Mortgages (ARMs)

 An in-house program requiring 15% equity or down payment.  The maximum term is 20 years with the rate adjusting every three years.  These loans are not sold and escrow is not required. 

Adjustable rate mortgages are set up with an interest rate to adjust periodically throughout the term of the loan, usually in relation to an index, with payments going up or down accordingly.

Index:
The index of an ARM is the financial institutions instrument that the loan’s interest rate is adjusted to.  Cleveland State Bank’s index is the New York Prime.  The interest rate of the loan will adjust with New York Prime on the intervals as described in the note.

Margin
The margin is an important part of the ARM.  It is a number of percentage points, stated in the note, added to the index to calculate the ARM interest rate at each adjustment.  As an example, if the current index value is 5.50% and your loan has a margin of 1.50%, your fully indexed rate is 7.00%.

Interest Rate Caps
An interest rate cap places a limit on the amount your interest rate can increase.  There are two different types of caps:

   ●  Periodic caps, which limit the interest rate increase from one adjustment period to the next
   ●  Lifetime caps, which limit the interest rate increase over the life of the loan

Balloon Mortgages 

Balloon loans are short term mortgages that have some features of a fixed rate mortgage. The loans provide a level payment feature during the term of the loan, but as opposed to the 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term. Balloon loans can have many types of maturities, but most balloons that are first mortgages have a term of 5 to 7 years.

Home Equity Line of Credit (HELOC)

If you need to borrow money, home equity lines may be one useful source of credit. Initially at least, they may provide you with large amounts of cash at relatively low interest rates and they may provide you with certain tax advantages unavailable with other kinds of loans. (Check with your tax advisor for details.)

At the same time, home equity lines of credit require you to use your home as collateral for the loan. This may put your home at risk if you are late or cannot make your monthly payments. Those loans with a large final (balloon) payment may lead you to borrow more money to pay off this debt, or they may put your home in jeopardy if you cannot qualify for refinancing. If you sell your home, most plans require you to pay off your credit line at that time. In addition, because home equity loans give you relatively easy access to cash, you might find you borrow money more freely. 

Remember too, there are other ways to borrow money from a lending institution. For example, you may want to explore second mortgage installment loans. Although these plans also place an additional mortgage on your home, second mortgage money usually is loaned in a lump sum, rather than in a series of advances made available by writing checks on an account.

Second Mortgage Rates

Many companies offer variable rate mortgages, also known as adjustable rate mortgages or ARMs. These provide for periodic interest-rate adjustments. If your loan contract allows the financial institution to adjust or change the interest rate, be sure you understand when the company has the right to change the interest rate, whether there are any limits on how much the interest or payments can change, and how often the company can change the rate. You also should know what basis the company will use to  determine a new rate of interest.