
National Black Church Initiative is a subsidiary
of the DC Black Church Initiative |
EXPLANATION OF VARIOUS TYPES OF MORTGAGES
Different mortgage products are created to service different
types of population bases upon a variety of factors. It is important that you
understand the type of mortgage you have. Some of the more common terms are:
- 2/28s with a 3-year term and adjusted rate. In this type
of mortgage, the interest rate adjusts after twenty-four months. If interest
rates increase, the mortgage payment will increase. In most cases, however,
even if the interest rate decreases, the mortgage payment will never
be lower than the initial payment amount.
- 3/27s with a 30-year term and adjustable rate. Like
the 2/28s mortgages, this mortgage will adjust upward after thirty-six
months.
For example, a borrower who took out a $300,000 ARM at
7.32% in mid-2005 would have had an initial monthly payment of $2,060.79. ‘A
typical adjustment would have pushed that payment to $2,692.63 this
year,’ says Keith Gumbinger, vice president of HSH Associates
and a New Jersey publisher of mortgage-rate data. Unable to cover the
higher payments, a number of homeowners fell behind. |
- Mortgages at places that have
an easy access to financing within a 24-hour period such as the Metropolitan
Money Store. These
are characterized by individuals who do not have the proper documentation to
purchase a house and are willing to pay exorbitant interest
rates like prime plus 5% to 10%. These mortgages are geared to low to middle
income individuals and neighborhoods.
- Interest Only Mortgages: This simply means that
you pay only the interest of the mortgage over a fixed period of time.
After that period ends, your payment increases substantially and you
begin paying on the principal and interest.
- Payment Option ARMs: These loans allow the borrower to
choose the payment amount. The borrower can opt to pay the fully amortized
amount or a lesser amount. Unfortunately, these loans can easily
place the borrower in a position where the loan is negatively amortizing. That
is, the principal that is owed on the loan is increasing instead
of decreasing. In this loan, the borrower can simply end up owing more that
the initial borrowed amount.
- No Doc Loans: No “doc” is simply another word for no “documentation”.
With this loan, you do not have to provide complete or full documentation,
such as tax returns and verification of employment. However, in order to
receive a “no doc” loan, you will pay a higher interest rate.
- Stated Income/Stated Assets Loans: A stated income loan allows you
to tell the loan officer what your income and assets are without providing
proof or substantiation of the income or assets. These loans can be
dangerous if you do not give correct information to the loan officer
because you may end up with a monthly payment that is higher than you
can afford. In addition, failing to provide correct information is fraud and
the borrower can be prosecuted. Do not take advice from anyone who
suggests to you to pad your income or assets. In order to receive a stated
income loan, you will pay a higher interest rate.
- Home Equity Loans: Home equity loans allow you to drawn down money based
on the equity in your home. Homeowners can get into trouble by borrowing too much
against the equity of the house and having no additional income to cover the loan
should anything happens. Homeowners must be careful to only borrow up to
the true cost/value of the home. In fact, it is a good rule to not borrow more
than 85% of your home’s equity.
- No Money Down: No-Money-Down Payment mortgages give borrower
without sufficient funds for the standard down payments the ability to buy
houses. Borrowers with demonstrated ability, good credit and an ability
to pay the housing payment. However over the years the model deteriorated,
and, in recent years, No-Money-Down payment mortgages have become avail
able to just about anyone.
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