What
Type of Mortgage Loan Is Right for Me?
With all the mortgage loan options available, we understand
it can be difficult to know if you’re choosing the best
loan. That's why our Loan Officers listen and take the time
to learn about your specific situation. Then we will provide
you a detailed review of the benefits of various types of
loans. Ultimately, we want to design a loan that works best
for you.
Here
are some examples of types of loans:
Fixed
Rate Mortgages
Adjustable Rate Mortgages
Balloon Loans
Limited Income Products
First & Second Mortgages
Special Mortgage Loan
Products
Product Comparisons
Stated Income / No Income Verification
Fixed
Rate Mortgages (FRMs)
As the name indicates, this loan provides you,
the borrower, with a fixed interest rate over the whole term
of the loan. These loans are the easiest to understand. You
can count on the principal and interest payment amount staying
the same every month for the entire term of the loan. At the
end of the term of the loan, your loan balance is zero. Remember,
however, if your loan includes an escrow account, the escrow
portion of your monthly payment may change annually when escrows
(annual tax and insurance payments) are analyzed.
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Adjustable
Rate Mortgages (ARMs)
The interest rate on an Adjustable Rate Mortgage
can change according to the terms of the loan. If you have
an ARM loan, you can expect your loan to be reviewed periodically
for an interest rate adjustment.
In addition
to the usual terms that you see on mortgage loans, the ARM
loan note identifies some special terms that are unique to
these types of loans:
Index — a published rate that is not controlled by the
lender. The lender will use this rate as the base for
determining
a new interest rate periodically over the life of the loan.
Paragon uses the LIBOR index
(London Interbank
Offer Rate) that is published weekly in the Wall Street Journal.
Margin —
the percentage rate the lender will add to the applicable
index to determine the new interest rate.
(For example, if LIBOR is 7% and the margin is
2%, then the new interest rate would be 9%.)
Initial Adjustment Rate Cap
— a limit of how much the interest rate
can increase at the first adjustment.
Periodic Rate Adjustment Cap
— a limit to the percentage an interest
rate can change at each adjustment.
Ceiling —
the highest interest rate that can be charged
during the term of the loan.
Floor —
the lowest interest rate that can be charged during the term
of the loan. Generally, the initial interest rate is also
the floor, so borrowers will never see a rate adjusted lower
than the initial rate on their loan.
Change date
— the date that the new interest rate
becomes effective. Your payment changes 30 days after the
change date because interest is accrued and is collected for
the period prior to your due date (in arrears).
How do ARMs work?
Very simply, at the time specified in your
mortgage note, the loan is reviewed for a possible interest
rate adjustment. Paragon Mortgage Bankers looks up the current LIBOR
rate and adds to it the margin to establish a new interest
rate. The rate adjustment cap, ceiling and floor identified
in the mortgage note limit the adjustment.
Example: Assume that it is time to review an ARM for its first
adjustment. The initial rate is 7.5% and the margin is 4.00%.
LIBOR is at 4.00%.
What
is your new interest rate?
Answer:
Margin (4.00) + LIBOR (4.00) = 8.00%. Unless there are
limitations imposed by the note
(adjustment
caps, floors, ceilings),
the interest rate on your loan would adjust from 7.5% to 8.0%
Note:
ARMs are only available as first mortgages.
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Balloon
Loans
A variation of the Fixed Rate Mortgage, a
balloon loan is a fixed rate loan on which the payments are
calculated as if the loan were a 30-year term, but the
maturity date is 15 years. In other words, you will have the
lower payments of a 30-year fully amortized loan, but the loan
term is only 15 years, so there is a large "balloon" payment
(the loan balance)
due in year 15.
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Limited
Income Products
There are two programs Paragon Mortgage
Bankers provides
customers who are not able to prove their income with traditional
pay stubs:
Limited Income Documentation (LID) — This product is
for customers who are self-employed. The program is targeted
to borrowers who are unable to provide full supporting income
documentation. The three factors on which a lending decision
is based are credit history, collateral and employment history.
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Stated
Income Program/No Income Verification (NIV)
— This program requires no income verification;
the income stated by the applicant is put on the application.
Wage earners and self-employed borrowers are eligible for
this program.
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First & Second Mortgages
We offer both first and second mortgages to
most of our customers. First mortgages are the only product
available if you have severely damaged credit.
First Mortgage — A first mortgage is the first or earliest
recorded mortgage that you have. A loan made and recorded
after the first mortgage is considered a second mortgage.
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Second
Mortgage — A second mortgage
is your second earliest recorded mortgage. Because the second
mortgage lender gets paid second at a foreclosure sale, it
makes it a more risky loan for a lender. With this risk, second
mortgages have higher interest rates.
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Special Mortgage Loan
Products
In addition to our standard products, we also
offer special loan products that may address some of your
unique needs. Paragon Mortgage Bankers has stated income,
limited income verification documentation
(12-month bank statements rather than pay
stubs), as well as some higher
loan-to-value (LTV) products. Ask your Loan Officer for
details.
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