TopBanner

Call
To Speak To A Licensed
Mortgage Specialist Today

Choosing a Mortgage Program

Everyone should consider having a Mortgage Analysis conducted by a licensed mortgage specialist before making decisions regarding their Missouri mortgage.
Click Here to learn more…

Which mortgage program is right for you?

There isn’t a single or simple answer to this question. The right type of mortgage for you depends on many different factors:

  • Your current financial picture.
  • How you expect your finances to change.
  • How long you intend to keep your house.
  • How comfortable you are with your mortgage payment changing.

For example, a 15-year fixed-rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage — but your payments could get higher when the interest rate changes.

Mortgage Options

Here is some information that will help you understand more about the various options available.

1) Fixed Rate Mortgages
The most common type of mortgage program where your monthly payments for interest and principal never change.

2) Adjustable Rate Mortgages (ARM) London InterBank Offered Rate (LIBOR)
These loans begin with an interest rate that is lower than a comparable fixed rate mortgage, but the rate changes at specified intervals. LIBOR is the rate on dollar-denominated deposits, also known as Eurodollars, traded between banks in London and is the only Index being used right now on ARM’s.

3) Reverse Mortgages
A Special type of loan made to older homeowners who actually must be 62 or older) to enable them to convert the equity in their home to cash to finance other needs. This option can completely eliminate their house payment all together. Reverse Mortgage Purchases are a little known product for Senior Citizens to buy a home or even a second home.

4) Interest Rate Buy Downs
Buy downs are simply a way of prepaying interest at closing in order to have a lower house payment for 1, 2 or even the first 3 years of a mortgage. The buyer pays points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the original market rate for the remaining term.

1) Fixed Rate Mortgages
This is the most common type of mortgage program where your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.

Standard Missouri fixed rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. However, Gateway Mortgage is proud to offer the “Your-Gage” product as well where one could choose any fixed rate term between 8 and 30 years. If a client wants to pay off their home in 13 years, that can be set up. There are also “bi-weekly” fixed rate mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, 26 payments are made, or 13 “months” worth, every year.)

Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. The most common fixed rate loans are 15 year and 30 year mortgages.

During the early amortization period, a large percentage of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied to principal. A typical 30 year fixed rate mortgage takes 22.5 years of level payments to pay half of the original loan amount.

2) Adjustable Rate Mortgages (ARM)
These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage, and could allow a buyer to purchase a more expensive home.

The traditional ARM’s being offered today are 1, 3, 5, 7 or 10 years ARM’s. This means the rate is fixed for that many years and then begins to adjust at specified intervals (for example, every year) depending on changing market conditions. If interest rates go up, the monthly mortgage payment will go up, too. However, if rates go down, the mortgage payment will drop also.

London InterBank Offered Rate (LIBOR) is the only Index being used right now on ARMs.
LIBOR is the rate on dollar-denominated deposits, also known as Eurodollars, traded between banks in London. The index is quoted for one month, three months, six months as well as one-year periods.

LIBOR is the base interest rate paid on deposits between banks in the Eurodollar market. A Eurodollar is a dollar deposited in a bank in a country where the currency is not the dollar. The Eurodollar market has been around for over 40 years and is a major component of the International Financial Market. London is the center of the Euromarket in terms of volume.

The LIBOR rate quoted in the Wall Street Journal is an average of rate quotes from five major banks. Bank of America, Barclays, Bank of Tokyo, Deutsche Bank and Swiss Bank.

The most common quote for mortgages is the 6-month quote. LIBOR’s cost of money is a widely monitored international interest rate indicator. LIBOR is currently being used by both Fannie Mae and Freddie Mac as an index on the loans they purchase.

LIBOR is quoted daily in the Wall Street Journal’s Money Rates and compares most closely to the 1-Year Treasury Security index.

3) Reverse Mortgages
A Missouri reverse mortgage is a special type of loan made to older homeowners (typically 62 +) to enable them to convert the equity in their home to cash to finance living expenses, home improvements, in-home health care, or other needs.

With a reverse mortgage, the payment stream is “reversed.” That is, payments are made by the lender to the borrower, rather than monthly repayments by the borrower to the lender, as occurs with a regular home purchase mortgage.

A reverse mortgage is a sophisticated financial planning tool that enables seniors to stay in their home — or “age in place” — and maintain or improve their standard of living without taking on a monthly mortgage payment. The process of obtaining a reverse mortgage involves a number of different steps.

The first, most widely available reverse mortgage in the United States was the federally-insured Home Equity Conversion Mortgage (HECM), which was authorized in 1987.

A reverse mortgage is different from a home equity loan or line of credit, which many banks and thrifts offer. With a home equity loan or line of credit, an applicant must meet certain income and credit requirements, begin monthly repayments immediately, and the home can have an existing first mortgage on it. In addition, there is no restriction on the age of borrowers.

In general, reverse mortgages are limited to borrowers 62 years or older who have a substantial equity position in their home and whose home is free of tax liens. In fact, the older the homeowners are the less equity they are allowed to have and still qualify. The most advantageous situation is for borrowers about 70 years old or older who have at least 50% equity in their home. Often their house payment can be eliminated for the rest of their lives.

Borrowers usually have a choice of receiving the proceeds from a reverse mortgage in the form of a lump-sum payment, fixed monthly payments for life, or line of credit. Some types of reverse mortgages also allow fixed monthly payments for a finite time period, or a combination of monthly payments and line of credit. The interest rate charged on a reverse mortgage is usually an adjustable rate that changes monthly or yearly. However, the size of monthly payments received by the senior doesn’t change.

Some reverse mortgage products also involve the purchase of an annuity that can assure continued monthly income to the senior homeowner even after they sell the home.

The size of reverse mortgage that a senior homeowner can receive depends on the type of reverse mortgage, the borrower’s age and current interest rates, and the home’s property value. The older the applicant is, the larger the monthly payments or line of credit. This is because of the use of projected life expectancies in determining the size of reverse mortgages.

Seniors do not have to meet income or credit requirements to qualify for a reverse mortgage.

Unlike a home purchase mortgage or home equity loan, a reverse mortgage doesn’t require monthly repayments by the borrower to the lender. A reverse mortgage isn’t repayable until the borrower no longer occupies the home as his or her principal residence.

This can occur if the sole remaining borrower dies, the borrower sells the home, or the borrower moves out of the home, say, to a nursing home.

The repayment obligation for a reverse mortgage is equal to the principal balance of the loan, plus accrued interest, plus any finance charges paid for through the mortgage. This repayment obligation, however, can’t exceed the value of the home.

The loan may be repaid by the borrower or by the borrower’s family or estate, with or without a sale of the home. If the home is sold and the sale proceeds exceed the repayment obligation, the excess funds go to the borrower or borrower’s estate. If the sales proceeds are less than the amount owed, the shortfall is usually covered by insurance or some other party and is not the responsibility of the borrower or borrower’s estate. In general, the repayment obligation of the borrower or borrower’s estate can’t exceed the value of the property.

In general, a borrower can’t be forced to sell their home to repay a reverse mortgage as long as they occupy the home, even if the total of the monthly payments to the borrower exceeds the value of the home.

Reverse Mortgage Purchases, a special type of loan made to older homeowners (typically 62 +), are a little know product for Senior Citizens to use to buy a home or even a second home. The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc. (*from the U.S. Department of Housing and Urban Development)

4) Interest Rate Buy Downs
Buy downs are simply a way of prepaying interest at closing in order to have a lower house payment for 1, 2 or even the first 3 years of a mortgage. The buyer pays points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the original market rate for the remaining term.

The most common buy down is the 2-1 buy down. In the past, for a buyer to secure a 2-1 buy down they would pay 3 points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term.

As an example, if today’s rate was 4.75% and the amount borrowed $200,000 one would simply take the P&I payment for 12 months at 2.75% ($816.48) vs. 4.75% ($1043.29) = $2721.72 and add it to the PYI payment for 12 months at 3.75% ($926.23) vs. 4.75% ($1043.29) = $1404.72. The total cost of this particular buydown would be $2721.72 + $1404.72 = $4126.44. Thus a little over 2%.

In today’s market, mortgage companies have designed variations of the old buy downs rather than charge higher points to the buyer in the beginning they increase the note rate to cover their yields in the later years.

As an example, if the current rate for a conforming fixed rate loan is 4.75%, , the lender could increase the rate to maybe 5.5% but pay the approx. 2.1% to get you a rate of 3.5% for year 1 and 4.5% for year 2, finally settling on a fixed rate of 5.5% for the remainder of the loan.

Another common buy down is the 3-2-1 buy down which works much in the same ways as the 2-1 buy down, with the exception of the starting interest rate being 3% below the note rate for year 1, 2% below for year 2 and 1% below for year 3.

Set Up a Mortgage Analysis

Everyone should consider having a Mortgage Analysis conducted by a licensed mortgage specialist before making decisions regarding their mortgage.
Click Here to learn more…



Call 314-822-3999 to schedule your Mortgage Analysis appointment today!

Get Posts In Email!

St. Louis Mortgage Broker: Reverse Mortgage & Home Appraisal | Copyright © All Right Reserved