| Besides the standard fixed-rate
and adjustable-rate mortgages, there are other
types of mortgages and ways to finance a home,
including:
Jumbo mortgages
• Hybrid mortgages
• Biweekly mortgages
• Assumable mortgages
• Seller financing
• Jumbo mortgage
This is considered a nonconforming loan, because
it exceeds the loan limit set by Fannie Mae and
Freddie Mac, the two publicly chartered corporations
that buy mortgage loans from lenders, thereby
ensuring that mortgage money is available at all
times in all locations around the country. The
2001 single-family loan limit is $275,000. If
you need to borrow more than that, you will need
a jumbo mortgage, which generally has a higher
interest rate than "conforming" loans.
See the latest bankrate.com survey of jumbo mortgage
rates.
Hybrid mortgages
These are mortgages that combine elements of fixed
and adjustable-rate mortgages. One example would
be Fannie Mae’s two-step mortgage. It is
a special type of ARM because it adjusts only
once -- either at five years or at seven years.
After that initial adjustment, the mortgage maintains
a fixed rate for the remaining years of a 30-year
repayment term.. This new rate can never be more
than six percentage points higher than your old
rate. There are no limits on how much lower the
adjusted interest rate can be. At the adjustment
date, there is no additional refinancing cost,
no forms to complete, and no re-qualification
necessary.
Another example is a balloon mortgage. Here the
borrower makes initial payments at a lower fixed
interest rate for a specified period of time,
usually from three years to 10 years. After that
period, the principal balance of the loan is due
as a lump sum payment. Under certain conditions,
however, balloon mortgages can be converted at
that point to a fixed-rate or adjustable-rate
mortgage.
Biweekly mortgage
This is a fixed-rate mortgage in which payments
are made every other week, instead of monthly.
Typically, it is a method used to shorten the
life of a 30-year mortgage. Here's how that scenario
works: You take your monthly payment amount, divide
it by two, and then pay that amount every two
weeks. That means you will be paying 26 "half-payments"
a year -- the equivalent of 13 monthly payments,
with the 13th monthly payment applied entirely
to the principal balance. This simple device has
a dramatic impact on the length of the loan --
a 30-year loan can be paid off in about 23 years
through this method. The only tricky part of changing
to a biweekly mortgage is in making sure your
lender accepts your payments and correctly credits
the extra portion to principal.
Assumable mortgage
This is an agreement where the buyer of the home
assumes the payment of an existing mortgage from
the seller. This could be attractive for the buyer
if the interest rate on the assumable mortgage
is lower than the current market rate. Also, there
are few closing costs. For the seller, an assumable
mortgage may speed up the sale of the property.
Unless specified, however, the seller could remain
secondarily liable for payments.
Seller financing
This is an agreement where the seller of the home
provides financing to the buyer. The buyer makes
monthly payments to the seller instead of the
bank. The promissory note is secured by the property.
This type of financing often includes an assumable
mortgage.
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