What loan program is good for me?
Castle Mortgage Corporation has over one hundred-fifty mortgage products to choose from. Each program is designed with different borrower's needs in mind, so it is important to work with a mortgage consultant to find the program which best fits the borrower's needs.
A basic understanding of some of the most popular forms of mortgages will help the borrower feel comfortable with the options presented to him or her. Outlined below are some explanations of different mortgage products.

Fixed rate mortgages
These are the most common and traditional mortgages available. They are available in a variety of terms, but are most commonly either 30 or 15 year amortization schedules.
Fixed rate mortgages offer the security of having a mortgage payment that remains constant over the life of the loan. Fixed rate mortgages are a good idea when interest rates are low and when you plan on staying in the home for a long period of time.
A 30 year fixed rate mortgage has a lower monthly payment than a 15 year fixed rate mortgage. This would enable a borrower to qualify for a larger loan amount. There is a trade-off, however: over the life of the loan, the borrower pays almost twice as much total interest as they would pay with a fifteen year loan.
In recent years, a new mortgage product has gained in popularity: biweekly mortgages. This product offers payments comparable in size to those of a 30 year mortgage with the ability to payoff the loan in 18 to 19 years. This is achieved by making half of a regular 30 year payment every two weeks (or 26 payments a year). In effect, by paying biweekly, the borrower is making an additional month's payment every year, thereby paying off the loan faster. There are some drawbacks to this program which are important to understand. Most lenders require direct access to a checking or savings account in order to make the biweekly payments. This makes it difficult to take advantage of any grace period that might be included in a standard 30 year fixed rate mortgage. Also, the "13th month's" payment is applied to both principle and interest. If, on their own, the borrower decided to make an extra month's payment on a regular 30 year fixed rate mortgage (provided there is no prepayment penalty), it would be applied strictly towards principle, shortening the life of the loan even more rapidly than with the biweekly program. This decision is truly a matter of personal preference, structured payments versus the freedom of paying off at the borrower's own pace.

Adjustable Rate Mortgages
Adjustable rate mortgages (ARMs) include a variety of different mortgage products designed for different borrower needs.
The most common adjustable rate mortgage is called a 1 year ARM. This program adjusts annually to a new rate determined by the then current market conditions. The rate is calculated by using some index (such as the one-year treasury bill rate) and adding to it a margin (most often 2.5% to 3.0%). Most programs have caps, or limits, to how much they can change per adjustment and also over the life of the loan; with 1 year ARMS, the caps are commonly 2% per adjustment and 6% over the life of the loan.
1 year ARMs offer the advantage of a low initial rate in exchange for the security of a fixed rate. If the borrower is looking to stay in the home for only a short while, the 1 year ARM is an excellent alternative.
Some ARMs offer a conversion feature which, for a small fee, allow the ARM to convert to a fixed mortgage. When they convert, they are locked into a new rate (prevailing) without having to go through a refinance. The main drawbacks are that conversions usually must take place between the first and fifth years and the rate they convert to is somewhat higher than the best rates available at that time. It does, however, allow for some margin of security that a regular 1 year ARM does not.
Two step mortgages are adjustable mortgages that are set at a fixed rate for a predetermined period of time and then adjust once to a new rate for the balance of the term. Some examples of these are the 5/25 and 7/23 two step programs. They offer a lower interest rate than a 30 year fixed rate mortgage, with the 5/25 being lower than the 7/23. A first time home buyer might consider one of these programs if they need a lower rate in order to qualify but anticipate higher future income.
Balloon mortgages are similar to two-step mortgages in that they offer a low interest rate for a predetermined number of years (also as 5/25 and 7/23 formats). At the end of that term, the borrower must refinance the loan or pay it off (in some cases, they can qualify for an automatic conditional refinance). The rates on these programs are even lower than those in their corresponding two-step programs. Balloon mortgages are excellent for people who know they are not going to be living in their house for more than five to seven years.

Community Home Buyer Program
This program applies to approved FNMA programs and allows the mortgage to be underwritten with higher (more relaxed) ratios. It is designed to enable people with limited income and downpayments to qualify to purchase a new home.

FHA and VA programs
The Federal Housing Administration and the Veterans Administration have established programs to enable people who might not otherwise qualify to obtain mortgages. These programs do have loan limits, but the underwriting guidelines are flexible enough to help people with lower incomes or minimal downpayments to buy a home.

Jumbo Loans
Jumbo loan is the term used to describe loans that are larger than the limit (currently $203,150) set by FNMA and FHMLC. Almost all of the fixed rate and adjustable rate programs discussed have a corresponding jumbo program.
No Income Verification Programs (NIV)
These programs are designed to help self-employed individuals who might not show as much income as they truly make to qualify to purchase a new home. Excellent credit and strong assets are required for any of these programs.

Nonconforming Loans
There are many loans which do not qualify under standard FNMA and FHMLC guidelines. These include loans for seasonal homes, unique homes, and loans for people with tainted credit. A variety of programs are also available for these situations, although they usually have higher interest rates than conforming programs.

Castle Mortgage Corporation is a licensed First and Second Mortgage Lender in the State of Connecticut. Equal Housing Lender. Equal Opportunity Lender.

Last modified on Monday, July 15, 1996