Types of Loans

Fixed-Rate Mortgage Products

Monthly principal and interest payments do not change over the term of the loan which means your mortgage expenses are easily anticipated. If you believe interest rates are going to increase or if you want to pay off your house in a steady manner, this may be the best option for you. In some cases, a balloon payment may be required after a certain number of years. Balloon payments are more common among 2nd mortgages and not very common among 1st mortgages. A balloon payment means that the balance of the loan will be due after the specified amount of time.

Adjustable Rate Mortgage (ARM) Products

The interest rate on this loan will be fixed for a period of time and will then become adjustable for the remainder of the loan. For example, a 5-year ARM loan would have a fixed interest rate for the first five years and then convert to an adjustable rate for the remaining 25 years (30 year loan total). This adjustment is based on changes in a pre-selected index, and will take place according to a pre-defined schedule (generally every six months or every year). Your interest rate and monthly payment will fluctuate based on changes in your index. The most common indices are the Treasury Bill, Certificate of Deposit (CD), LIBOR, MTA, and COFI.

Adjustable rate loans have more risk due to the possibility that the interest rate could increase. However, because you are assuming additional risk the lender will generally reward you with a lower interest rate and monthly payment during the initial fixed interest period. These loans are of particular benefit to borrowers that plan to either sell the property or refinance before reaching the adjustable period. To learn more about the home loan process, click here.

Stated Income Mortgage Products

In qualifying for these products, the lender will not require you to provide standard explanations of your income, such as tax returns or paycheck stubs. This means that there is no verification of your income, but you still must state the source and monthly amount of your income. Individuals likely to be interested in a stated income loan are typically self-employed, paid partly in cash, or write-off a large portion of their income such as contractors, waiters & waitresses. To learn more about the home loan process, click here.

Home Equity Line of Credit (HELOC)

A home equity line of credit is a form of revolving credit in which your home serves as collateral. Think of it as a credit card that is secured by the equity in your home. Many homeowners use these credit lines for major items such as debt consolidation, travel expenses, or home improvements. HELOCs are an adjustable-rate line of credit that float with an index called “prime.” To learn more about the home loan process, click here.

Home Equity Loan (also known as a "Second Mortgage")

A home equity loan enables you to borrow money in a lump sum against the equity you have built up in your home. Equity is defined as the difference between what your house appraises at and the amount you owe against your home. This loan is subordinated (or placed behind) to the existing first mortgage. Buyers commonly use second mortgages to keep their first mortgage in the conforming range (which keeps the rate lower) and to avoid PMI. Home equity loans are often used to pay off credit card debt, buy a car or to make major renovations to a home. In general, home equity lines of credit are adjustable whereas home equity loans have fixed rates. To learn more about the home loan process, click here.