Fixed-rate mortgages, the most popular type of mortgage, offer the peace of mind that your interest rate will remain the same for as long as you have your loan.  If you expect to live in your home for many years, having the same interest rate may be your key concern.  If you decide that you like the stable, predictable payments of a fixed-rate loan, you have the option of choosing from a variety of repayment terms: 15, 20, and 30-years are the most common.  Typically, the longer the term of the mortgage, the more interest you pay over the life of your loan.  However, stretching out your repayment term means your monthly mortgage payments will be less than they would be with a comparable shorter term mortgage.

The most popular type of mortgage, the 30-year fixed-rate loan,  is most appealing to borrowers who want to stay in their homes for a long period of time and who want to enjoy consistent payments during this period.  Other benefits include keeping housing expenses to a minimum while maximizing mortgage interest deductions for income tax purposes.

Advantages: 

• Can require a low down payment, sometimes only 3 or 5 percent
• Consistent monthly payments
• Stable payments, monthly payment will not increase
• Provides maximum interest deduction for tax savings

Details: 

Eligible properties include one-to-four faimly, owner-occupied principal residences; second home and investment properties; and condos. 

With a 20-year fixed rate mortgage, you build up equity in your home more quickly and save quite a bit of interest over the life of your loan.  As with all fixed-rate mortgages, the interest rate on your loan never changes, bringing you peace of mind that your principal and interest payments will remain level over time.  However, higher monthly mortgage payments may make it more difficult to qualify compared to the 30-year fixed rate mortgage.

Advantages:

• You pay less interest over the life of you rloan, compared to a 30-year fixed-rate mortgage.  For example, on a $100,000 loan at 8.25 percent interest, the 20-year fixed rate mortgage can save you over $65,000 in interest payments when compared to a 30-year mortgage.
• Interest rate payments in the early years of the mortgage are comparable to a 30-year mortgage, allowing for a sizable mortgage interest tax deduction
• Your monthly payments are significantly less than for a 15-year mortgage, allowing you a greater chance to qualify for this type of mortgage.

Details:

Eligible properties include one-to-four family, owner-occupied principal residences; second homes and investment properties; and condos. 

You pay off a 15-year fixed-rate mortgage in half the time you pay off the traditional 30-year fixed-rate mortgage.  This shorter term makes it possible for you to build up equity in your home faster, which can let you move up more quickly to a more expensive home or save more in preparation for retirement, or a child's education.  This loan is particularly attractive if you are refinancing your mortgage because you shorten your term plus enjoy a lower interest rate; 15-year mortgages are usually offered at interest rates lower than those available with 30-year mortgages.  However, higher monthly payments may make it more difficult to qualify for compared to the 30-year fixed-rate mortgage.

Advantages:

• Offers a lower interest rate than a 30-year or 20-year mortgage.
• Saves you a significant amount of interest over the life of the loan.  For example, with a $100,000 loan at 8.25 percent interest, the 15-year mortgage will save you $95,000 in interest payments over the life of your loan, compared to the same mortgage amount for a 30-year term.  However, your monthly mortgage payments will be higher.
• This shorter-term mortgage allows you to own your home outright sooner.

Details:

Eligible properties include one-to-four family, owner-occupied principal residences;second homes and investment properties; and condos.

This type of adjustable-rate mortgage (ARM), also known as a Hybrid-ARM, maintains the same initial interest rate for the first 3, 5, 7, or 10 years of your loan, depending on the term you choose.  Your interest rate then adjusts annually, and can move up or down as market conditions change, based on the Index, Margin, and Annual/Lifetime Rate Caps of your particular loan.  

Advantages:

• Your initial interest rate will be lower than a fixed-rate mortgage, so you may be able to afford more home.
• You are protected against interest rate increases for the first 3, 5, 7, or 10-years of the loan, depending on which type of fixed period ARM you choose.
• You have time to improve your financial position (i.e., salary increases) or accumulate additional assets before the interest rate adjusts at the end of the fixed period.

Details:

The lifetime interest rate cap for fixed-period ARMs is typically 5 to 6 percentage points higher than your initial interest rate.  Your annual cap during the succeeding adjustable periods is typically 2 percentage points above or below the current rate.  

Eligible properties include one-to-four family residences including second homes and condos.

The Adjustable-Rate Mortgage (ARM) became popular in the early 1980's, when long-term interest rates were high and people needed a new type of mortgage to qualify to buy a home.  These products start out with a lower interest rate, then the interest rate adjusts periodically.  If you're confident that your income will increase steadily over the years, or if you plan to move in a few years and aren't concerned about potential rate increases, you may want to consider an adjustable rate mortgage.  

The interest rate of an ARM is based on a Margin, typically 2.75% plus the loan's Index, usually the 1-yr LIBOR (London Interbank Offered Rate) or 1-Year T-Bill Constant Maturity Treasury Rate, the weekly average yield of the U.S. Treasury securities adjusted to a constant maturity of one-year.

LIBOR
London Inter-Bank Offered Rate (LIBOR)

LIBOR is the rate of interest that member banks of the British Bankers' Association charge when they lend money to one another in the wholesale money markets in London, somewhat similar to our Fed Funds Rate. In fact, the LIBOR tends to closely track the US Fed Funds Rate. LIBOR is a standard financial index that is used globally and in US capital markets, and the Wall Street Journal publishes the index on a daily basis. In general, changes in the LIBOR have tended to be smaller than changes in the Prime Rate.

Summary:
Over the past several years, the LIBOR has slowly begun to replace the more commonly used 1-year T-bill index as the index of choice for hybrid ARMs such as 3-, 5-, 7-, and 10 yr products to determine rate at their adjustment periods. It is very established and dependable, yet it does carry a risk of slightly larger volatility when the US Dollar fluctuates. This is due to the fact that LIBOR is a European based index and reacts to the dollar strengthening or weakening much like the Euro becoming more valuable or less valuable to the dollar in slowing and expanding economic situations. The shorter term LIBOR products are great in a Fed easing cycle, but should be used cautiously and possibly avoided when the Fed is hiking short-term rates, as the index could rise very quickly. In these situations, a better option may be the 3 or 5 year Hybrid LIBOR ARMs.

1-Year T-Bill: One-Year/12-Month Constant Maturity Treasury (CMT)

This is an index published by the Federal Reserve Board based on the average yield of a range of Treasury securities, all adjusted to the equivalent of a one-year maturity. The US Treasury determines the yields on these securities by using the "daily yield curve". The daily yield curve is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market. This index tends to be volatile and responds quickly to changes in economic conditions.

Summary:

This was the index of choice for years for banks and many ARMs still on the books are tied to this index. Because of its propensity to move quickly, the 1-year T-bill index has become less attractive for many mortgage originators and consumers as other alternative indexes have been introduced. Normally the CMT has a two percent interest rate change cap per year and a six percent lifetime cap, and the CMT has moved two percent in a year several times over the past twenty-five years.

Ideally Suited for:
This index is ideally suited for a very limited market at this time due to its volatility. It could possibly be used during a downtrend in interest rates ­ such as during an easing cycle by the Fed - as it will tend to fall more quickly than other indexes.  

Unlike a traditional mortgage that you pay back each month, reverse mortgages can provide payments to you.  They, in effect, "reverse" the direction of the mortgage payments.  With reverse mortgages, no repayment of the loan is required until you no longer occupy the home as your primary residence.  At that time, the loan is due and payable.  If you and any of your co-borrowers are at least 62 years old, and own your home free and clear or with a low loan balance, reverse mortgages may be for you.  They provide an excellent opportunity for older Americans to enjoy extra security and financial support.  To provide additional housing options for older homeowners, HUD insures reverse mortgages under the Home Equity Conversion Mortgage (HECM) program.

Advantages:

• The funds are yours to spend in any way you chose.
• There are no monthly payments with a HECM.
• Your loan funds do not affect Social Security or Medicare Benefits.  (If you receive Supplemental Social Security or Medicaid, these benefits may be affected.)
• You do not have to pay back the loan until you sell your home or no longer use it for your primary residence.  Then, you or your estate will repay the cash you received from the HECM, plus interest and other finance charges to the Lender.  This means that the remaining equity in your home can be passed on to your heirs through the sale of the property.
• You will never owe more than the value of the home at the time of repayment, even if the loan balance exceeds the value of your property .  This means that no debt will ever be passed on to your heirs.

FHA loans have been helping people become Homeowners since 1934.  The Federal Housing Administration, which is part of HUD, insures the loan against default, mitigating potential loss to the Lender.   FHA loans have lower down payment requirements than Conventional loans, more lenient credit qualifying terms, and allows the Seller to pay all of your Closing Costs.   It is the most popular program for First-Time Homebuyers.

Advantages:

• 3.50% Down Payment for Purchase Transactions.
• Down Payment can be borrowed or a Gift from Relatives.
• Seller may pay all of your Closing Costs up to 6% of the Sales Price.
• Lower Credit Scores allowed, down to 580 possible.
• Allows Borrowers currently in Chapter 13 Bankruptcy to buy a home with one year of timely payments to the Trustee and Trustee Approval.
• Allows Borrowers with a recent Chapter 7 Discharged Bankruptcy if two years have elapsed from the Discharge and no new derogatory credit.
• Maximum FHA loan amount for Portland-Vancouver area is $362,950 for Single Family Residence (including Condos).
• Manufactured Homes are also eligible (Manufactured Housing units must be built (after June 15th 1976) on a permanent chassis at a factory, transported to the current site from the factory, and attached to a permanent foundation.)
• FHA loans are assumable by a credit-worthy owner-occupant.

FHA Refinance Guidelines:

• Allows up to 97.75% Loan to Value for a rate and term refinance.
• Allows Streamline refinances of existing FHA loans with no credit qualifying and no appraisal.
• Allows up to 85% loan-to-value for Cash-Out Refinances.
• Allows up to 95% loan-to-value for Cash-Out Refinances with two supportive Appraisals.
• Allows refinance to payoff existing Chapter 13 bankruptcy plan.

Serving Those Who Served:   VA Loans are guaranteed loans made to Eligible Veterans for the purchase of a home which must be their Primary Residence.

Basic Entitlement is $36,000.  Loans in excess of $144,000 to purchase or construct a home receive an additional Entitlement up to an amount equal to 25% of the Freddie Mac Conforming Loan Limit (currently at $417,000 for 2009).  A qualified Veteran may obtain a Zero Down Payment loan up to $417,000. 

A Veteran's Certificate of Eligibility documents their Entitlement and Eligibility for the VA Loan Program.  You can apply for a Certificate of Eligibility by submitting a completed  VA Form 26-1880, and your DD214  to the Winston-Salem Eligibility Center. 

ADVANTAGES: 

• Zero Down Payment up to $417,0000.
• The VA Funding Fee may be financed and is waived for Disabled Veterans receiving VA Compensation.
• All Closing Costs may be paid by the Seller.
• No Monthly mortgage insurance premiums.
• VA Loans are Assumable to credit qualified Borrowers.
• Streamline Rate Reduction refinances of existing VA Loans available.
• Debt Consolidation cash-out refinances up to 100% of Appraised Value.

The Rural Development (RD) Guaranteed Rural Housing (GRH) Program is an affordable housing loan program that is guaranteed (insured) by the U.S. Department of Agriculture.  It is a 30-yr fixed rate product. 

Advantages:

• 100% Financing, Down Payment is not required
• Borrowers without savings or who wish to retain their savings qualify
• Enables more borrowers to become homeowners
• No monthly mortgage insurance means a lower monthly payment for borrowers
• All Homebuyers are eligible (subject to Income Limits)
• Seller Contributions up to 6% of Sales Price
• Primary Residences only

Details:

The borrower's income is limited to 115 percent of the area median income for the guaranteed loan.  Current Household Income Limits for Portland-Vancouver:

1-Person: $54,650 2-Person: $62,450 3-Person: $70,250 4-Person: $78,050 5-Person $84,300 6-Person: $90,550

Single-family,owner-occupied principal residences, including new manufactured housing units, are eligible.  Eligibility is limited to rural areas, which generally have a population no more than 10,000. In areas far from major metropolitan cities, the town population limit (where the property is located) may be as high as 20,000.