Loan Programs

The loan program feature of a mortgage loan refers to the type of mortgage rate, fixed or adjustable, and duration of the principal and interest repayment. Today the industry primarily offers three types of loan programs. There is no prepayment penalty on any of the programs.

Fixed Rate Mortgages – Best suited when the rates are low and the borrower intends to live in the property for a longer period of time. The following features are applicable:

  • Interest rate and principal and interest payment are fixed for the duration of the loan term
  • Loan is fully amortized (paid off) during the term. Each payment includes interest and pay down of principal.
  • Typical terms are 30 and 15 years. Other terms offered: 40; 20; and 10 years
  • Prepayment of principal on any fixed term loan will accelerate equity build up and result in full payoff of loan prior to maturity.

Adjustable Rate Mortgages – Best suited when the adjustable rate is significantly lower than the fixed rate and/or the borrower does not intend to keep the property for a long period of time. The following features are applicable:

  • The initial rate is usually fixed for a term of 3, 5, 7, or 10 years and there after it changes every year with a resulting change in the payment.
  • The loan is fully amortized during the term. Each payment includes interest and pay down of principal.
  • The rate adjustment is tied to an index plus a fixed margin.
  • Prepayment of principal will result in payment adjustment at the time of rate change.

Interest-Only Mortgages – Suitable for buyers who intend to keep initial payments low in anticipation of higher earnings in future. The following features are applicable:

  • Interest only payments are limited to the first 5 or 10 years.
  • There is no reduction in principal during the term of interest only payments unless an extra amount is paid.
  • After the initial term, loan payments on the principal amount are based on the outstanding principal balance for the remaining term.