o you want to buy a new home. Unless you
have the cash to entirely finance the pur-
chase, you'll need to get a mortgage -- a legal
contract that pledges a property as security for
a loan. The property is basically the collateral
for the mortgage that you take out. If you
don't make payments as agreed in the mort-
gage contract, the lender can take possession
of your home through foreclosure.
Since the cost of a home can run into hun-
dreds of thousands of dollars, a mortgage loan
tends to be for a very large sum of money
that you get to pay off over a long period of
time -- usually around 15 to 30 years. You can
obtain a mortgage from a bank, a mortgage bro-
ker or wholesale lender. Since a mortgage
represents a hefty investment on your part, and
there are many kinds from which to choose,
it's wise to be diligent in your research and selec-
tion of a particular mortgage loan. Be absolute-
ly sure that it is well suited to your needs and
that you can afford to pay it for as long as
you plan to remain in the home.
To help you get started, here's a rundown
on the different types of mortgages available,
courtesy of MortgageLinks.org and Home-
store.com, two online informational resources
on home buying and mortgage loans.
MOST COMMON MORTGAGES
· Fixed Rate (FRM): the mortgage-payment
rate and loan payments remain fixed for the
life of the loan, usually 30 years. Shorter term
fixed rates (usually 15 or 20 years) carry lower
interest rates, higher payments, and less money
paid out than with longer term loan mort-
gages. Longer term fixed rates have smaller
monthly payments and are easier to budget than
shorter term mortgage loans.
· Adjustable Rate (ARM): interest rates
start lower than with a fixed-rate mortgage,
but then become variable. At specific inter-
vals (typically every year), a lender adjusts
the rate up or down as interest rates fluctuate.
Its lower initial rate can help you qualify for
a larger mortgage loan. If you know your
income will rise to keep pace with an ARM's
periodic adjustment, and you plan to move in
a few years, an ARM could be a good choice.
OTHER, LESS COMMON MORT-
GAGES
Although the majority of buyers will go
with the standard fixed-rate or adjustable-
rate mortgages, there are other types of mort-
gages that are available to finance your piece
of real estate:
Balloon: gives borrowers lower rates and pay-
ments for a specific period of time -- any-
where from three to 10 years. After that point,
the borrower has to pay off the principal
(amount borrowed) balance in a lump sum.
Under certain conditions, they can be con-
verted to fixed-rate or adjustable-rate loans.
Many borrowers either sell their homes before
they get to their due dates, or end up refi-
nancing their balances into new mortgages.
This is a great mortgage option for buyers
who don't plan on living in the property for
long. A disadvantage is that if your plans
change and you decide to remain in your
home, you will have to pay off your mort-
gage, or refinance the balance, which will
result in more closing costs.
Jumbo: considered a nonconforming loan
because it exceeds the loan limit set by Fan-
nie Mae and Freddie Mac (the two publicly
chartered corporations that buy mortgage
loans from lenders), thereby ensuring that
mortgage money is available at all times in all
locations around the country. If you require
more money in your loan, then a jumbo mort-
gage may be a good option. You'll have the
opportunity to purchase larger, more expen-
sive properties, but you'll also be paying a
higher interest rate in exchange for the lender's
higher risk.
Subprime: reserved for individuals with
less-than-satisfactory credit, based on their
FICO scores (FICO scores are a number
assigned to you based on your credit rating).
These mortgage loans have higher interest
rates and more burdensome terms than con-
ventional loans, but they give bruised-cred-
it borrowers a chance to reap the benefits of
homeownership just like their more credit-
worthy cousins. Be prepared for inconsistent
terms because interest rates, fees, and under-
writing guidelines can vary drastically among
lenders.
Assumable: relatively rare, but a home-
owner with an assumable loan can "hand off"
the loan to a buyer instead of paying it off
using proceeds from the home sale. If rates are
low and you can get one, by all means, do
so. If rates rise, buyers will be able to assume
your loan at the rate you currently pay (and
will be willing to pay more for your house)
because it will be much cheaper than any
loan they could get from a bank or other
source. An advantage of an assumable mort-
gage is that it reduces monthly payments and
saves money on closing costs. A disadvantage
is that sellers will charge more for their prop-
erty, so buyers need more cash to cover the dif-
ference between the asking price and the
loan balance.
Two-step: combines elements of fixed and
adjustable-rate mortgages. Features a fixed
rate and payment for an initial period, fol-
lowed by one adjustment, then a fixed rate and
payment for the remainder of the loan term.
These mortgages will have names such as
2/28, 5/25 or 7/23. A 7/23 mortgage, for exam-
ple, has an initial fixed period of seven years,
an adjustment, and then 23 more years of
payments following the adjustment. These
mortgages give borrowers with damaged cred-
it an opportunity to buy a home and to estab-
lish better credit. However, if your credit does
not improve, you could be stuck in a high-rate
loan for much longer than two or three years.
Biweekly: a fixed-rate mortgage in which
payments are made every other week instead
of monthly. It is a method used to shorten
the life of a 30-year mortgage simply by divid-
ing what would be your monthly payment
into two. That means you will be paying 26
"half-payments" a year (the equivalent of 13
monthly payments), with the 13th monthly
payment being applied entirely to the bal-
ance of the principal. By making more pay-
ments, you'll have a dramatic impact on the
length of the loan. For example, a 30-year
loan can be paid off in about 23 years through
this method. The only tricky part of chang-
ing to a biweekly mortgage is in making sure
your lender accepts your payments and cor-
rectly credits the extra portion to the principal.
Besides cutting your mortgage short, biweek-
ly payments could serve as a good budgeting
tool for many people, although it is not rec-
ommended for people who may encounter
financial problems since these payments are
made so close together.
Federal Housing Administration (FHA):
Eligible parties may qualify for a down payment
(as low as three percent). Loans come from
lenders approved by the U.S. Department of
Housing and Urban Development (HUD).
VA loans: The Department of Veterans
Affairs helps eligible veterans and service
personnel to get loans through convention-
al lenders. Down payments may not be
required.
Mortgage made simple
Open by Appointment until April, 2006 - Only 15 Minutes From Auburn
Barnett Memorials
689-3813
·
Call anytime
236 E. Main Street (Rt 5), Elbridge
ESTABLISHED 1974
10
%
discount
on orders for
spring delivery
VETERANS PLAQUES
MOUNTED AT
NO CHARGE WITH PURCHASE
OF MONUMENT
INSIDE DISPLAY
MONUMENTS - MAUSOLEUMS
CEMETERY LETTERING
CLEANINGS
· Companion & Home Maker Service
· 24 Hour Live-In Care/Sitter Services
n
O
p
t
s
FOR INDEPENDENT LIVING, INC.
P R O V I D I N G S A F E & T R U S T W O RT H Y C A R E
"Remaining in
YOUR HOME is your option - your right"
6 8 5 - 3 8 9 6 S k a n e a t e l e s
www.eldershaveoptions.com
K
C
M
Y
The Citizen, Auburn, New York
Secure Your Future
January 29, 2006
9
S
