Types of Mortgages
Fixed Rate Loan
With fixed rate mortgage (FRM) loan the interest rate and your mortgage monthly payments remain fixed for the period of the loan. Fixed-rate mortgages are available for 40, 30, 25, 20, 15 years and 10 years. Generally, the shorter the term of a loan, the lower the interest rate you could get.The most popular mortgage terms are 30 and 15 years. With the traditional 30-year fixed rate mortgage your monthly payments are lower than they would be on a shorter term loan. But if you can afford higher monthly payments a 15-year fixed-rate mortgage allows you to repay your loan twice as faster and save more than half the total interest costs of a 30-year loan. The payments on fixed rate fully amortizing loans are calculated so that at the end of the term the mortgage loan is paid in full. During the early amortization period, a large percentage of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied to principal.
Interest Only Mortgage
Interest-only loans can be structured in many different ways. Some are interest only for a set number of years, which then have a balloon payment requiring you to pay off the note, or they can convert to a fully amortized loan after an initial interest-only period. Interest-only features are offered on Fixed Rate Mortgages, Adjustable Rate Mortgages (ARMs) and on Hybrid Mortgages, i.e. (those that combine the features of a fixed and adjustable mortgage, carrying an introductory fixed rate period of typically, 3, 5, 7 or 10 years, followed by a fully amortizing adjustable period). These loans are attractive if you're trying to stretch your budget to afford a larger mortgage, you don't plan to be in the house for long period of time, you don’t mind that you are covering only the interest due and are not paying down the principal until affordable, you refinance, or sell the property. As an example, a 10/1 interest-only loan will have a constant interest-only payment amount for the first 10 years. At the end of 10 years, the principal loan amount will have remained unchanged. However, most lenders allow for interest only payments or more, so you can decide each month how much of your payment will go towards the principal, if any. Interest only mortgages can also be beneficial for those who might not be able to pay principal in the early years, but can make it up later.
Adjustable Rate Mortgage
To understand the differences between the home equity loan and equity line, you should bear in mind that home equity loan is an additional (second) mortgage loan, while equity line works much like a credit card does. Where the traditional equity loan gives the homeowner money in one lump sum, the home equity line of credit allows homeowners to obtain cash when they need and to pay interest only on the outstanding balance. So you should use an equity loan when you need all the money up front and it is more advantageous using an equity line if you have an ongoing need for money.
Unlike the home equity loan the home equity line is usually open-ended. Some home equity lines last for as long as you own your home.
Another factor to consider when choosing between home equity loans and equity lines is your monthly payment. Home equity loans usually have fixed interest rates and fixed payment amounts, while most home equity lines are of the adjustable-rate and if the interest rate goes up, so does your monthly payment.
Home equity lines are almost always tied to the prime rate plus some margin, with at least a lifetime cap on rate movements. Some home equity lines may have an introductory rate.
You may want to compare rates of home equity line with the rate on a credit card. Here is an example:
If you know that tax bracket is 30% and the rate of the equity line is 9% then your effective rate is: 9% x (1-0.3)=6.3% Now you can compare this rate with your credit card rate.
Private Money Lending
Private Money Lending, also known as "Hard Money", generally refers to privately placed loans as opposed to conventional loans. Conventional loans typically have more stringent underwriting guidelines, for both the type of property used as collateral and the credit worthiness of the borrower. The most compelling reasons for obtaining a Private Money Loan are:
- when time is of the essence
- when you don't qualify under the guidelines of conventional lenders
- when you need a short term solution to reach your immediate financial goals until other options become available, such as conventional financing, sale of the property, etc.
Through our sister company, ACM Investor Services, Inc., we have a unique advantage in the marketplace. ACM has the flexibility of funding as a direct lender or utilizing relationships with a diverse network of private investors offering fast, competitive financing alternatives for borrowers or properties that do not meet conventional underwriting guidelines.
ACM Investor Services, Inc. internally underwrites, processes and funds their private money loans. The loans are funded through private investors and/or pension fund investors.
ACM also acts as the servicing agent throughout the life of the loan. When the loan comes due, they will assist you in refinancing it, if necessary. They will consult with JCF ADVISORS to determine if longer term conventional financing is obtainable or offer you new, short term private money financing.
