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For Sale by Owner Articles • Owners.com - Mortgages and Financing

Mortgage Mumbo-Jumbo

By Marcie Geffner
 
Years ago, virtually every home buyer financed his home purchase with a traditional 30-year fixed-rate mortgage. Today, that homogeneity is a distant memory. The myriad of relatively new mortgage products empowers home buyers by giving them more choices, but this empowerment comes with a large measure of confusion. And, that confusion is compounded by the fact that one type of mortgage can be known by different names. Here is a quick guide to some of the options:
  1. Hybrid mortgage, two-step mortgage, 5/25 mortgage, 7/23 mortgage
    All of these descriptors are different names for less volatile alternatives to an adjustable-rate mortgage (ARM). A "hybrid" or "two-step" mortgage starts with a fixed interest rate for five, seven or ten years, then converts to a new fixed rate or an adjustable rate for the remainder of the term. The initial interest rate on a "5/25" mortgage is fixed for five years, while the initial interest rate on a "7/23" mortgage is fixed for seven years.
  2. Jumbo mortgage, nonconforming mortgage
    The principal amount of a "conforming" mortgage is less than the maximum limit set by secondary market mortgage purchasers Fannie Mae and Freddie Mac. A "jumbo" or "nonconforming" mortgage has a principal amount higher than this limit and a higher interest rate.
  3. 80-10-10 mortgage
    An "80-10-10 mortgage" is a creative combination of an 80 percent mortgage, a 10 percent downpayment and a 10 percent home equity loan. This strategy enables the borrower to avoid purchasing mortgage insurance, which otherwise would be required if the borrower's down payment were less than 20 percent of the purchase price of the home.
  4. Biweekly mortgage
    A "biweekly" mortgage is structured so the borrower makes a payment every two weeks, instead of once a month. Each biweekly payment is equal to one-half the monthly payment that would be required to pay off the loan at the end of the term. By making 26 biweekly payments each year, the borrower will pay off the loan much sooner. The same net effect can be achieved by making an extra payment each year on a mortgage with a monthly payment schedule.

© Copyright Marcie Geffner. All Rights Reserved. 
This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of the copyright owner.

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