WebSource Loan Products and Types of Interest Only Loans

The interest rate on this loan is the sum of the LIBOR index plus a margin rounded to the nearest one-eighth of one percentage point, (0.125%). The margin will not change throughout the term of the loan. the index value will be adjusted every month, which will cause the interest rate to be adjusted every month.

6 MONTH ARM - INTEREST ONLY LOAN OPTION

The interest rate on this loan is the sum of the LIBOR index plus a margin rounded to the nearest one-eighth of one percentage point, (0.125%). The margin will not change throughout the term of the loan. the index value will be adjusted every six months, which will cause the interest rate to be adjusted every six months.

3 YEAR ARM - INTEREST ONLY LOAN OPTION

The interest rate is fixed for the first three years of the loan term. Years 4 thru 30 the interest rate is adjusted every year to the sum of the LIBOR index plus a margin rounded to the nearest one-eighth of one percentage point, (0.125%). The margin will not change throughout the term of the loan. During the first five years of the loan, the borrower is offered an interest only payment option and a principal and interest payment option. Years 6 thru 30 require a principal and interest payment.

5 YEAR ARM - INTEREST ONLY LOAN OPTION

The interest rate is fixed for the first five years of the loan term. Years 6 thru 30 the interest rate is adjusted every year to the sum of the LIBOR index plus a margin rounded to the nearest one-eighth of one percentage point, (0.125%). The margin will not change throughout the term of the loan. During the first five years of the loan, the borrower is offered an interest only payment option and a principal and interest payment option. Years 6 thru 30 require a principal and interest payment.

7 YEAR ARM - INTEREST ONLY LOAN OPTION

The interest rate is fixed for the first seven years of the loan term. Years 8 thru 30 the interest rate is adjusted every year to the sum of the LIBOR index plus a margin rounded to the nearest one-eighth of one percentage point, (0.125%). The margin will not change throughout the term of the loan. During the first five years of the loan, the borrower is offered an interest only payment option and a principal and interest payment option. Years 6 thru 30 require a principal and interest payment.

MTA - Option ARM

This MTA ( Monthly Treasury Average Index ) based Adjustable Rate Mortgage offers the borrower several payment options. These options include a minimum payment and a principal and interest payment that is adjusted monthly. Under certain conditions the borrower may be offered an interest only payment option.

The interest rate on the loan is the sum of the MTA index plus a margin. The margin will not change throughout the term of the loan. The index value will be adjusted monthly, which will cause the interest rate to be adjusted monthly.

The minimum payment option is adjusted annually with a payment cap adjustment of 7.5% of the prior years payment. Every five years the payment cap is suspended in order to insure that the loan will be paid off at the end of the loan term. Because the interest rate will be adjusted monthly, the minmum payment may or may not cover the amount of interest being charged. If the minimum payment does not cover the amount of interest being charged, paying the minimum will result in negitive amortization. This simply means that the balance on your loan will increase in the amount of the difference between the minimum payment and the interest charge on the loan that month.

The principal and interest payment option is available every month. Since the interest rate is adjusted monthly, this payment is adjusted accordingly. This payment option will pay the loan off based on a 30 year amortization.

The interest only option is not available every month. This option is only available when the minimum payment does not cover all of the interest charge that month.

COFI - Option ARM

This COFI (Cost Of Funds Index) based Adjustable Rate Mortgage offers the borrower several payment options. These options include a minimum payment and a principal and interest payment that is adjusted monthly. Under certain conditions the borrower may be offered an interest only payment option.

The interest rate on the loan is the sum of the COFI index plus a margin. The margin will not change throughout the term of the loan. The index value will be adjusted monthly, which will cause the interest rate to be adjusted monthly.

The minimum payment option is adjusted annually with a payment cap adjustment of 7.5% of the prior years payment. Every five years the payment cap is suspended in order to insure that the loan will be paid off at the end of the loan term. Because the interest rate will be adjusted monthly, the minmum payment may or may not cover the amount of interest being charged. If the minimum payment does not cover the amount of interest being charged, paying the minimum will result in negitive amortization. This simply means that the balance on your loan will increase in the amount of the difference between the minimum payment and the interest charge on the loan that month.

The principal and interest payment option is available every month. Since the interest rate is adjusted monthly, this payment is adjusted accordingly. This payment option will pay the loan off based on a 30 year amortization.

The interest only option is not available every month. This option is only available when the minimum payment does not cover all of the interest charge that month.

COSI - Option ARM

This COSI (Cost Of Savings Index) based Adjustable Rate Mortgage offers the borrower several payment options. These options include a minimum payment and a principal and interest payment that is adjusted monthly. Under certain conditions the borrower may be offered an interest only payment option.

The interest rate on the loan is the sum of the COSI index plus a margin. The margin will not change throughout the term of the loan. The index value will be adjusted monthly, which will cause the interest rate to be adjusted monthly.

The minimum payment option is adjusted annually with a payment cap adjustment of 7.5% of the prior years payment. Every five years the payment cap is suspended in order to insure that the loan will be paid off at the end of the loan term. Because the interest rate will be adjusted monthly, the minmum payment may or may not cover the amount of interest being charged. If the minimum payment does not cover the amount of interest being charged, paying the minimum will result in negitive amortization. This simply means that the balance on your loan will increase in the amount of the difference between the minimum payment and the interest charge on the loan that month.

The principal and interest payment option is available every month. Since the interest rate is adjusted monthly, this payment is adjusted accordingly. This payment option will pay the loan off based on a 30 year amortization.

The interest only option is not available every month. This option is only available when the minimum payment does not cover all of the interest charge that month.

10/30 Year Interest Only Arm

* The initial payments are interest only for the first 10 years.
* After the completion of the interest only period, the unpaid balance is fully amortized over the remaining term of the loan.
* The Borrower may make voluntary principal payments during the interest only period. The required interest only payment will be reduced to reflect the decrease in the principal unpaid balance.

Additional Loan Products Defined

Blanket Mortgage

A blanket mortgage, is a mortgage client securing several parcels of property, frequently used by developers who have purchased a single tract of land intending to subdivide into individual parcels. The developer normally requires a "partial release" clause so that individual parcels can be released from the blanket mortgage as they are sold.

Bridge Loan

A bridge loan (or swing loan) is a type of short-term loan in the financial industry. Bridge loans are typically taken out for a period of 2 weeks to 3 years in order to finance other projects. Uses for bridge loans include real estate purchases, retrieving real estate from foreclosure and business loans for operating capital. A Bridge Loan is a temporary Short Term loan taken for a pending liability for some time and it then gets converted into Bank Overdraft.

Equity Loan

An equity loan is a mortgage placed on real estate in exchange for cash to the borrower. For example, if a person owns a home worth $100,000, but does not currently have a lien on it, they may take an equity loan at 80% loan to value or $80,000 in cash in exchange for a lien on title placed by the lender of the equity loan.

Many lending institutions require the borrower to repay only an interest component of the loan each month (calculated daily, and compounded to the loan once each month). The borrower can apply any surplus funds to the outstanding loan principal at any time, reducing the amount of interest calculated from that day onwards. Some loan products also allow the possibility to redraw cash up to the original LVR, potentially perpetuating the life of the loan beyond the original loan term. The rate of interest applied to equity loans is much lower than that applied to unsecured loans, such as credit card debt.

Hard Money Loan

A Hard Money mortgage is a specific type of financing in which a borrower receives funds based on the value of a commercial real estate property. Hard money loans are typically issued at much higher interest rates than standard commercial or residential property loans and are almost never issued by a standard commercial bank.

Negative Amortization

In finance, negative amortization is an amortization method in which the borrower pays back less than the full amount of interest owed to the lender each month. The shorted amount is then added to the total amount owed to the lender. Such a practice would have to be agreed upon before shorting the payment so as to avoid default on payment. Also known as deferred interest or Graduated Payment Mortgage

Package Loan

Is a real estate loan used to finance the purchase of both real property and personal property, such as in the purchase of a new home that includes carpeting, window coverings and major appliances.

Participation mortgage

Is a loan wherein the lender, or mortgagee, is entitled to share in the rental or resale proceeds from a property owned by the borrower, or mortgagor. A participation mortgage may or may not require principal and interest payments, and may or may not contain a balloon payment.

Reverse Mortgage

A reverse mortgage is a type of loan available to older people, used as a way of convertingtheir home equity (the value of their home, minus the amount of mortgage(s)) into a cash payment while retaining ownership of the property. To qualify for a reverse mortgage in the United States, the borrower must be at least 62 and be able to pay it off an existing loan with the proceeds from the reverse mortgage and if needed, additional personal funds. The amount any individual homeowner is eligible for depends on their age andthe Federal Housing Administration appraised value of the home. The location of the home may also have an impact.

Reverse mortgages allow the home owner to continue living in the home, and allows repayment of the loan to be deferred until the borrower is no longer living in the home. In the United States, the proceeds of the loan are tax-free, there are no minimum income requirements, and for most reverse mortgages, the money can be used for any purpose.

Income and credit ratings are not considered by lenders when granting reverse mortgages, notwithstanding a bankruptcy that has not been resolved. The majority of reverse mortgages are FHA insured. In a reverse mortgage in the U.S., a borrower can be paid in a lump sum, in monthly advances (payments), through a growing line of credit, or a combination of all three. The loan advances are not taxable and do not affect Social Security or Medicare benefits, although Medicaid and SSI benefits may be impacted. The cost of a reverse mortgage exceeds the costs of other types of loans. However, in some cases the costs may be less than or the same as the cost of selling a home and moving.

Second mortgage

A second mortgage is a secured loan that is subordinate to another loan against the same property. More specifically, the second loan in sequence. In real estate, a property can have multiple loans against it. The loan which is registered with county or city registry first is called the first mortgage. The loan registered second is called the second mortgage. A property can have a third or even fourth mortgage, but those are rarer. Second mortgages are called subordinate because, if the loan goes into default,, the first mortgage gets paid off first before the second mortgage gets any money. Thus, second mortgages are riskier for the lender, who generally charges a higher interest rate.

Term Loan  also known as an Interest-OnlyLoan

An interest-onlyloan is a loan in which for a set term the borrower pays only the interest on the capital; the capital remains owing. At the end of the term the borrower may renew the interest-onlyloan, repay the capital, or (with some lenders) convert the loan to a principal and interest payment loan at his option. It should be noted that some interest-onlyloans in Canada allow the borrower to pay interest-only, principal and interest, or even principal and interest plus 20% extra.

In the United States, a five or ten year interest-only period is typical. After this time, the principal balance is amortized for the remaining term. In other words, if a borrower had a thirty year loan and the first ten years were interest-only, at the end of the first ten years, the principal balance would be amortized for the remaining period or twenty years. The practical result is that the early repayments (in the interest-only period) are substantially lower than the later repayments. This enables a borrower who expects to increase their salary substantially over the course of the loan to borrow more than they would have otherwise been able to afford. Interest only loans were popular in the 1920s. Due to the economic downturn and lack of work for the average person, there were many foreclosures during the Great Depression of the 1930s.

Interest-onlyloans are popular ways of borrowing money to buy an asset that is unlikely to depreciate much and which can be sold at the end of the loan to repay the capital. For example, second homes, or properties bought for letting to others. In the United Kingdom in the 1980s and 1990s a popular way to buy a house was to combine an interest-onlyloan with an investment in the stock market, the combination being known as an endowment mortgage. The stock market crash of the late 1990s showed this to be a gamble. An interest-only mortgage in Canada can be combined with Corporate Bonds in a Registered Retirement Savings Plan (RRSP) where the plan holder receives a tax deduction, tax deferral and compound interest.

Wraparound Mortgage

A wraparound loan is a way of lowering the barriers of entry to a junior lien or subordinate loan; it also expedites process of purchasing a home. A junior lien or subordinate loan is a second mortgage that generally sits behind larger first mortgage. Here is an example of wraparound:

The seller, who has the original loan sells his home with the existing first loan in place and a second loan which he "carries back" from the buyer. The mortgage he takes from the buyer is for the amount of the first mortgage, plus a negotiated amount less than or up to the sales price minus the down payment and closing costs. The seller then continues to pay the first mortgage with the proceeds of the second. Once the second mortgage is satisfied, the seller is out, but this is rarely the case.

Typically, the seller also charges a middle on the first loan. For example, one has a first mortgage at 6% and sell the whole property with a rate of 8% on a wraparound loan. He/she make a 2% middle on the first mortgage amount, using other people's money to make money. So, it is in the best interests of a seller to keep the wrap, rather than allow the buyer to assume the first mortgage. There are relatively few wraparounds today because the first mortgage must be assumable, or the mortgagee must permit this type of assumption to occur on the loan. Today, only the FHA writes assumable loans, as most mortgage bankers have found that the main expenses (and profits) of a transaction occur at origination. Most mortgages have a due on sale clause to prevent the use of wraparounds.

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