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:

1. 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.


2. 3/27s with a 30-year term and adjustable rate. Like the 2/28s mortgages, this mortgage will adjust upward after thirty-six months.

3. 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.


4. 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.


5. 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.


6. 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.


7. 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.


8. 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.


9. 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.