Money & Mortgage Matters

MONEY MATTERS

The most important part of financing is a knowledge of the options available. Consider the following questions as a basis for determining your financing needs.

MAKE YOUR MORTGAGE THE RIGHT FIT!

Mortgages to meet everyone’s needs. These summaries will help you narrow your search.

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ADJUSTABLE RATE MORTGAGE

A mortgage that allows the lender to adjust the mortgage's interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down as market conditions change. The change in interest rate will result in a change in the periodic payments due under the mortgage. ARMs are attractive when short-term interest rates are trending lower.

FEDERAL NATIONAL MORTGAGE ASSOCIATION ( FNMA )

The largest supplier of mortgages to home buyers and owners, a corporation established by Congress and owned by stockholders. Commonly referred to as 'Fannie Mae,' this federally chartered agency buys mortgages from lending institutions, pools them with other loans, and sells shares to investors. Detailed information may be found at http://www.fanniemae.com

BALOON MORTGAGE

Usually a short-term fixed-rate loan that involves small payments for a certain period of time with the balance due in a single, large payment at a time specified in the contract. When the balloon mortgage comes due, the entire balance must be paid. Generally, the homeowner must either refinance or sell the property.

FIXED MORTGAGE

The interest rate you pay and the monthly principal and interest payments are agreed upon from the outset and will not change throughout the entire term of the mortgage.

BUY-DOWN

The payment of extra money on a loan now so as to provide a lower interest rate over either a given period or over the life of the loan. To buy down a mortgage, the buyer pays additional points to the lender, which will decrease the interest rate for a specific period.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ( GNMA )

A government-owned corporation within the U.S. Department of Housing and Urban Development, it is also referred to as 'Ginnie Mae’. This government agency guarantees the payment of principal and interest on all of its pass-through securities, and its guarantee is backed in turn by the full faith and credit of the U.S. Government.

CONFORMING LOAN

Conventional home mortgages, first mortgages up to loan amounts mandated by Congressional directive, which meets the qualifications for sale or delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC).

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GRADUATED PAYMENT MORTGAGE ( GPM )

A mortgage that usually starts the borrower with low payments that are gradually increased over five to ten years, before leveling off for the remainder of the term of the loan until the loan is fully amortized. Negative amortization usually occurs until the payment reaches the level payment stage. Usually government insured loans (VA or FHA).

CONSTRUCTION LOAN

A structured, short-term loan to provide funds necessary to begin construction on buildings or homes.

GROWING EQUITY MORTGAGE ( GEM )

This is a long-term mortgage whereby the borrower agrees to increase his payment each year by an agreed amount. The added money per payment is applied directly to the outstanding principal on the mortgage. The mortgage thereby is paid off in a shorter number of years.

CONVENTIONAL MORTGAGE

A mortgage loan made by an institutional lender without the inclusion of government guarantees such as VA or FHA loans.

RENEGOTIABLE RATE MORTGAGE ( RRM )

Similar to an Adjustable Rate Mortgage, this type of mortgage allows the interest rates and payments to be adjusted periodically according to an index.

CONVERTIBLE ARM

The convertible ARM is a combination of both fixed-rate and adjustable rate mortgages, allowing the best of both options in one package.

REVERSE ANNUITY MORTGAGE ( RAM )

A type of mortgage in which the property's equity serves as security for periodic payments made by the lender to the borrower. Mortgage is generally paid out upon the sale of the property.

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DEFERRED INTEREST MORTGAGE

A mortgage in which the payment is not sufficient to cover the principal and the interest and the payment portion of the interest is postponed until a certain date at which time the interest postponed is added to the principal owing.

ROLLOVER MORTGAGE ( ROM )

A mortgage where the payments are only guaranteed for three, four, or five years. The borrower is allowed to refinance at the end of the term at the interest rate then applicable.

FEDERAL HOME LOAN MORTGAGE CORPORATION ( FHLMC )

The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the largest national supplier of home mortgage funds. It is commonly known as Freddie Mac. The company buys mortgages from lending institutions, pools them with other loans, and sells shares to investors. Detailed information may be found at http://www.freddiemac.com.

SHARED APPRECIATION MORTGAGE ( SAM )

It is a loan arrangement where two or more parties participate in the purchase of real estate and share the appreciation and tax deduction. Similar to shared equity mortgages.

FEDERAL HOUSING ADMINISTRATION ( FHA )

An agency of the federal government, the Division of the Department of Housing and Urban Development, both sets standards for the underwriting of private mortgages and insures residential mortgages made by private lenders.

VETERANS' ADMINISTRATION LOANS

Mortgage loans to veterans by banks, savings and loans, or other lenders that are guaranteed by the Veterans' Administration, enabling veterans to buy a residence with little or no money down.

FEDERAL HOUSING ADMINISTRATION ( FHA ) LOANS

Low-rate loans available to Americans with smaller incomes who are interested in modestly priced homes. Down payment requirements are usually lower than the prevailing ones.

WRAPAROUND MORTGAGE

A secondary financing option in which a new larger mortgage is created to encompass the first mortgage. This large second mortgage is used to preserve the low interest rate on the first mortgage for a potential buyer.

KNOW YOUR NEEDS

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