Denver, Colorado Mortgage Options
There are many different home loan options to help finance your dream. Depending on your goals and financial experience we may recommend some options over others. Contact our office to help understand these differences and learn which option is the best for you!
Option adjustable rate loans, or flexible payment ARMs, have an interest rate that adjusts every month with no maximum interest rate. These loans allow borrowers to make very low mortgage payments at the start, but monthly payments will rise as time goes on, very high in most cases. These loans first became available in the early ’80s but are not in use at this time.
Adjustable Rate Mortgages
Adjustable rate loan programs (ARMs) are mostly used for home buyers that only plan to own their home for a short period of time, or plan on paying off their home in the near future, perhaps from the sale of another property. ARMs give you more affordability and flexibility in your monthly payment as they typically have an interest rate that is 1/2 point to 1 1/2 points lower than a 30 year fixed rate loan, depending on the fixed period of the ARM. After the initial fixed period (usually 3, 5, 7, or 10 years) the interest rate can adjust, up or down, depending on the index of the loan, the margin, and the “caps”. The index is a published rate relating to either the U.S. Treasury Bond, the London Interbank Offering Rate (LIBOR), or the Cost of Funds Index (COFI). The index is added to the margin (usually anywhere from 1.5 to 3.0) to get the new, adjusted interest rate. The “caps” refer to how much the interest rates can go up or down during the first change, how much it can go up or down each change period after the first change, and the maximum that it can go up or down over the life of the loan.
This mortgage has a payment schedule similar to a 30-yr fixed rate loan, but the term of the balloon loan is shorter, typically 5 to 15 years. At the end of the loan term, 5-15 yrs, the outstanding balance must be paid in one lump sum, either out of pocket or by refinancing the home. There are pros and cons when comparing them to Fixed and Adjustable loans.
Interest Only Mortgages
This type of loan allows the borrower to pay only the interest on the loan for a predetermined period of time. The principle of the loan is not required to be paid down during this period, giving the borrower a lower monthly payment for a short term. Remember though, once the “interest only” period expires, the payments increase to include repayment of the principle and are much higher than a standard loan, since principle must be paid over a shorter period of time. The longer the “interest only” period, the higher the payments will rise after its expiration.
Bi-weekly mortgages are loans in which the borrower makes a payment every two weeks instead of the typical monthly payment arrangement. The result is a slightly shorter amount of time to pay off your loan. Paying bi-weekly results in 26 payments per year, which is equal to 13 monthly payments, rather than the 12 payments made with a standard monthly mortgage payment. This payment plan can be setup for any type of loan you may get.
These plans do not require any extra loan payments, but save slightly on interest by advancing the payment by the half month. You are paying twice a month, 24 payments a year. It reduces the principle on the mortgage as each payment is received, thus saving interest. On average, this method only shortens the loan term by approximately one month on a 30 yr mortgage, but this can vary.
The above is not a complete list of the different types of mortgage available. Please call our office today to hear other options that may fit your situation!