Trendy Mortgage Refinancing and Second Mortgage Programs: A fleeting Review

Trendy Mortgage Refinancing and Second Mortgage Programs: A fleeting Review

The combination of rising interest rates (although nevertheless historically low) and rising home prices has caused the strong mortgage market to slow from its record speed. This has motivated lenders to either introduce creative new loan products or to more aggressively market existing products. If you have not shopped for a second mortgage in a while, you will find numerous new products from which to choose. Following is a fleeting review of some of the new and popular products obtainable today.

Interest Only – With this loan program you are paying only the interest on your mortgage and are not paying any principal. This reduces your monthly payments and can allow you to provide a larger home or save more money on a mortgage refinancing or home buy loan. If used carefully, you can also free up cash flow that can be used for investment purposes or to pay down high interest rate debt.

Negative Amortization – These are often marketed using the phrase “option arm” or “choice mortgage”. With this loan kind, your payment does not cover all of the monthly interest. Often, your mortgage balance is increasing and the inner interest rate is usually a monthly variable rate. These loans are used to dramatically reduce your monthly payment and can be used for a mortgage refinancing or home buy. This program should be reserved for the more complex borrower and it is important that you understand the terms of the loan.

40 Year Amortization – instead of paying off in 30 years, this loan pays off in 40 years. As with the Negative Amortization and Interest Only, this program is used to reduce your monthly payment.

Stated Income / Reduced Income Documentation Loans – There are a variety of these loan products obtainable, but they are chiefly used to for individuals with difficult to verify income. These can be used for mortgage refinancing, second mortgages and home buy loans. As lenders have become more comfortable with credit scoring, these products have become very popular. Essentially the lender is relying on the credit score for their loan decision. They realize that borrowers with higher credit scores will pay their mortgage and they do not need to fully verify their income.

ALT A Programs – The “ALT” is short for different and the “A” refers to the borrower category. These are categories of mortgages that fall outside the more stringent guidelines of Fannie Mae and Freddie Mac. Generally these mortgage refinancing programs allow for more flexibility with regards to loan to values and income documentation requirements and can be used for home buy, mortgage refinancing and second mortgages.

Hybrid Second Mortgages – Traditionally, your options for a second mortgage were either a fixed rate, fixed term loan or a variable rate, open ended line of credit. Now, you can have the assistance of both. You can start your second mortgage as a variable rate home equity line of credit and then lock in all or a portion of it to a fixed rate for a fixed number of years.

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