Mortgage Loans

Although you may see many different types of mortgage loans, they all belong to two different families: Fixed Rate Mortgages and Adjustable Rate Mortgages. Here is some basic information on the two types of mortgages.

Fixed Rate Mortgages

Fixed Rate Mortgages are the most popular type of loan. They offer a monthly payment that is known and does not change for the life of the loan. Most fixed rate mortgages are for terms of 15-30 years, with some as long as 40 + years. When choosing a longer loan term, beware of the interest rates. Although it might be lower payments when you choose a 30 year loan term, you will probably be paying higher interest payments.

Adjustable Rate Mortgages

An Adjustable Rate Mortgage is a loan in which your interest rate on the loan is periodically adjusted based on a variety of indexes. For example: a 3/1 ARM loan would offer a fixed rate for the first three years, adjusting once a year thereafter. The lender sets the interest rate by adding a margin to the index rate (I.E.: COFI, CD, Libor, Etc.).

Two Common Index Rates:

• Cost of Funds Index (COFI) - a regional average of interest expenses incurred by financial institutions, which in turn is used as a base for calculating variable rate loans.
  
• Certificates of Deposit Index - calculated by averaging the previous 12 rates of the 3 month CD rate.
  

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What is a Short Sale?

In a short sale, a seller arranges with their mortgage lender to accept a price lower than the amount they owe on the property. The lender typically agrees to forgive the rest of the loan. This helps the seller to avoid foreclosure, the buyer to pick up a property for less than normal, and the lender to avoid having to unload a property.

Things that you need to know before starting a short sale:

• It’s not necessary to be behind on payments for the Lender to agree to a short sale, but there does need to be a valid hardship. Many banks will require the borrower to be behind on payments. Check with your bank before doing anything that could hurt your credit.
• Short sales do affect your credit scores. The damage is not as extensive as a foreclosure, but it will still be on your credit.
• Property taxes still have to be paid as a part of any accepted short sale. It depends on the lenders policies as to who pays it, but it will be paid.
• Interest is accrued until the date a loan is paid off. You may have as much as 30 days of interest on top of the balance owing. This will need to be paid off with the short sale.
• It may be very difficult if not next to impossible to get a mortgage during the next 12 months. However, if you have paid all your other bills on time, your credit score will probably improve rather quickly.
• You need to have a buyer for your property in order to complete the short sale process.
• Should there be multiple mortgages on a property, all mortgage companies will need to agree with the short sale offer.
• Make sure to have the lender agree in writing to forgive any deficiency so they will not give you a 1099 for the difference (deficiency) of the loan amount and what the property ultimately sold to the buyer.
• “Squeaky wheel gets the grease.” Banks are inundated with requests for short sales so don’t wait for them to respond. Call them periodically to help the process along.
• Short sales are not a “short” process. They may take months to finalize all of the details.

For more information on all aspects of your home when buying or selling, visit www.123SellHouseNow.com.