| ELITE MORTGAGE SERVICES, INC. |
| TYPES OF LOANS |
| CONTACT US NOW Phone: (239) 354-0058 Fax: (888) 607-4420 info@elitemortgageservicesinc. com |
Below, you will see a brief description of the many types of mortgage loans. Some of them are not used as much as
others. I am available to help you with any questions that you might have. Just call me at (239) 354-0058, Fax (888)
607-4420 or e-mail me at info@elitemortgageservicesinc.com
Conforming Loan
A mortgage under the amount set by Congress as the maximum loan size eligible for purchase by either Fannie Mae
or Freddie Mac. Any loan amount above that figure is considered a Jumbo loan and is often subject to an interest rate
pricing premium as well as to some additional underwriting restrictions.
Jumbo Loan
A mortgage under the amount set by Congress as the maximum loan size eligible for purchase by either Fannie Mae
or Freddie Mac. Any loan amount above that figure is considered a Jumbo loan and is often subject to an interest rate
pricing premium as well as to some additional underwriting restrictions.
Fixed Rate Loan
A mortgage in which the interest rate does not change during the entire term of the loan.
Interest Only Loan
A mortgage is "interest only" if the monthly mortgage payment does not include any repayment of principal for some
period. The payment consists of interest only. During that period, the loan balance remains unchanged. For
example, if a 30 year fixed rate loan of $100,000.00 at 8.5% is interest only, the payment is.06/12 times $100,000.00,
or $708.34. Otherwise, the payment would be $768.92. This is the "fully amortizing payment". The payment, that if
maintained over the term of the loan, will pay if off completely. The interest only loan thus reduces the monthly
payment by 7.9%. A loan that is interest only for the full term would not amortize. The loan balance would be the
same at term as it was at the outset.
Balloon Loan
A mortgage which is payable in full after a period that is shorter than the term. In most cases, the balance is
refinanced with the payment of all debts. This type of loan has a fixed monthly payment for the term of the loan (for
example five years) that are based on a 30 year repayment schedule. At the end of the five year term, the
outstanding principal balance of the loan is due, plus any unpaid interest.
First Time Home Buyer Loan
A loan is considered a first time home buyer loan when it has one or more features that are available only to first time
home buyers. For example, a lender may reduce its interest rate (typically by one eighth to one quarter of one
percent, reduce or eliminate its closing costs and, if an adjustable rate mortgage, reduce its margin. (typically by one
quarter of one percent) Such a loan may also have less stringent loan qualification guidelines.
5/25 Adjustable Rate Mortgage
This type of loan has monthly payments that are based on a 30 year repayment schedule and the interest rate
remains fixed for the first 60 months (five years). After that time, the interest rate (and therefore, the monthly
payments) may change once for the remaining 25 years of the loan. The interest rate is based upon fluctuations in
an index (typically the fixed interest rate offered at that time by the Federal National Mortgage Association, 60 day
index. The amount that is added to the index is called the "margin". For example, if the index equals 5.0% at the time
of the adjustment, and the margin equals 1.0%, the new interest rate would be 6.0%. However, this type of loan
program usually has limits on how much the interest rate can increase or decrease at the time of the interest rate
adjustment. Typically, the interest rate cannot increase more than 6% from the initial interest rate, nor decrease more
than 1.5% from the initial rate.
7/23 Adjustable Rate Mortgage
This type of loan is similar to the 5/25 Adjustable Rate Mortgage, except for the fact that the monthly payments remain
fixed for the first 84 months (seven years) as opposed to five years and after that time the interest rate may change
once for the remaining 23 years of the loan. As with the 5/25 Adjustable Rate Mortgage, the index is typically the fixed
interest rate offered at the time by the Federal National Mortgage Association (60 day mandatory yield rate), the
margin is added to the index to determine the interest rate adjustment and the rate cannot increase or decrease by
more than a given percentage.
3-2-1 Buy down loan
This type of loan program is based on an interest rate (actual rate) that does not change over the term of the loan
and has fixed monthly payments that are made during the first 36 months (three years), are calculated based on an
interest rate that is less than the actual rate. The first 12 monthly payments of the loan are calculated based on an
interest rate that is 3% less than the actual rate. For the second year of the loan, payments 13 through 24 are based
on an interest rate that is 2% less than the actual rate of the loan. For the third year of the loan, payments 25
through 36 are based on an interest rate that is 1% less than the actual rate. After the third year, the monthly
payments to be made over the remaining 27 years of the loan are based on the actual rate.
This type of loan is typically used to help borrowers who are unable to qualify for a loan at current interest rates. By
"buying down" the interest rate the borrower decreases the initial monthly payments that are required to be made
which increases the borrower's ability to qualify for the loan. The cost of "buying down" an interest rate for a period of
time is generally determined by calculating the difference between (a) the total monthly payments that would have
been made during the buy down period if the loan did not have a buy down feature and (b) the total monthly payments
to be made during this same period with the buy down feature in place. This amount is generally paid for at the time
of closing.
2-1 Buy down loan
This type of loan is similar to a 3-2-1 Buy down loan however, the buy down feature of the loan occurs during the first
two years of the loan as opposed to the first three years. Accordingly, the first 12 monthly payments of the loan are
calculated based on an interest rate that is 2% less than the actual rate and for the second year of the loan,
payments 13 through 24 are calculated based on an interest rate that is 1% less than the actual interest rate.
1-0 Buy down loan
This type of loan is similar to a 3-2-1 Buy down loan and a 2-1 Buy down loan, however, the buy down feature of the
loan occurs only during the first year of the loan as opposed to the first two or three years. Accordingly, the first 12
monthly payments of the loan are calculated based on an interest rate that is 1% less than the actual rate.
Blended Loans
Since fixed rate conforming loans generally have lower interest rates than fixed rate jumbo loans, some lenders offer
borrowers seeking to borrow more than the conforming loan amount, a loan that allows the borrower to take
advantage of the lower fixed interest rate of a conforming loan on a portion of their loan that does not exceed the
conforming loan limit. This feature is then blended together with a variable interest rate feature on that portion of the
loan amount that exceeds the conforming loan limit. For example, if the conforming loan limit is $333,700, a consumer
looking for a fixed rate loan of more than $333,700 can obtain a conforming fixed interest rate on the first $333,700 of
their loan provided they are willing to have a variable interest rate on that portion of their loan that exceeds $333,700.
The variable interest rate portion is often similar to a home equity loan which is typically tied to the interest rate known
as the "prime rate".
B/C Credit Loan
These types of loans are available to borrower who have or have had credit problems such as being late on or
defaulting on the repayment of loans or credit cards. Although such loans are available as fixed rate or adjustable
rate mortgage loans, the interest rate and/or costs associated with such loans are generally higher than loans
available to borrowers who do not have a history of credit issues to reflect the fact that the risk associated with such
loans is generally higher. Borrowers who do not have a history of credit issues are said to have "A" credit. Those with
a history of credit issues are said to have "B" credit of "C" credit depending on the severity of the credit issues.
Assumable Loan
This type of loan does not have to be paid off by a borrower when the borrower sells his/her home. Instead, the new
buyer of the home may assume the obligation of the initial buyer to repay the loan in accordance with the terms of the
loan. Generally, most loans are not assumable and some that are, may be subject to the lender's approval of the new
borrower and/or the lender's ability to modify the terms of the loan.
Second Home Loan
This type of loan is used to purchase or refinance a property other than a borrower's principal residence. In most
instances, such a property is a borrower's vacation home (or "second home"). Provided that the property is not
strictly an investment property, the interest rate and costs charged on such loans will generally be the same as those
available on loans used to purchase or refinance a borrower's principal residence.
No Income/No Asset Verification Loans
This type of loan is similar to the No Income Verification Loan and a No Asset Verification Loan, except it is used by
borrowers who do not wish to or are unable to verify their income and their assets. Once again, the interest rate
and/or costs for such loans may be slightly higher than normal to reflect the higher degree of risk involved in loaning
to borrowers without verifying their income or assets. Such risk is often offset, to some degree, by borrowers who
have a significant history or paying loans of a similar type as the one being sought or who are borrowing only a small
percentage of a property's value.
Construction Loan
This type of loan is typically used to finance the construction of a home. It may or may not also include the purchase
of the land upon which the home is to be built. Unlike a typical mortgage loan where the entire amount of the loan is
disbursed to the borrower at the time the loan transaction is consummated, a construction loan typically involves a
series of disbursements which are linked to a construction schedule. Some construction loans have fixed interest
rates, others have variable interest rates. In addition, some construction loans automatically convert to a regular
mortgage (referred to as "permanent" financing) once construction has been completed, while others require another
loan transaction to take place so the borrower can payoff the construction loan and obtain permanent financing.
Relocation Loan
This type of loan is offered by lenders to borrowers who are relocating their principal residence to the lender's area.
Although such loans have most or all of the features associated with typical mortgage loans used to purchase a
borrower's principal residence, relocation loans often have flexible loan qualification guidelines to accommodate
situations that arise during a borrower's relocation to another area. For example, even though a borrower's spouse
has not obtained a job in the area they are moving to, the lender may take all or a portion of the spouse's former
employment income into consideration based on the anticipation of future employment
Bridge Loan
This type of loan is offered by lenders to borrowers who plan to use money from the sale of their current property to
purchase their new property but are moving into the new property before the sale of their current property takes
place. In such instances, a bridge loan is obtained, (based on and secured by the borrower’s equity in their current
property), to “bridge” the time between when the borrower buys their new property and the time when the borrower
sells their current property at the time of sale of the current property, the proceeds from such sale are used to pay off
the bridge loan. Typically, bridge loans are for a short period of time (e.g. 3-6 months) and feature adjustable interest
rates tied to an index such as the prime interest rate
Convertible Loan
This type of loan refers to an adjustable rate mortgage that contains a feature which allows a borrower to convert their
loan from an adjustable rate mortgage to a fixed rate mortgage. Such loans generally contain a time period during
which the borrower may exercise his/her option to convert (typically between the 13th and 60th month of the loan).
The new fixed interest rate that the borrower converts to is based upon fluctuations in an index (typically the fixed
interest rate offered at the time of the Federal National Mortgage Association). (60 day mandatory yield rate) and is
calculated by adding a specified amount to the index (typically .625% - 1.25%). For example, if the index equals 7.0%
at the time of conversion and the margin is 1.0%, the new interest rate would be 8.0%. Some lenders charge
borrowers a fee to exercise their conversion option, however, such fees generally do not exceed $250.
Float down Loan
This type of loan refers to a loan that enables a borrower to “lock in” an interest rate (generally at the time of
submitting a loan application) and obtaining a better interest rate in the event that rates decrease between the time of
submitting the application and the time the loan closing occurs. The initial “float down” does not occur unless the
decrease in the interest rate equals or exceeds .375% (3/8 of one percent).
Land Loan
While the typical mortgage loan involves both a structure and the land upon which the structure is built, this type of
loan involves only land on which a structure has yet to be built.
10/3 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 7/3 ARM except for the fact that the interest rate remains fixed for the first 120
months (10 years) as opposed to the first 84 months. After that time, the interest rate may change every 36 months.
As with a 7/3 arm, the index it typically the Three Year Treasury Security index , the margin is typically 2.50% - 3.00%,
the adjustment cap is typically 2% and the lifetime cap is typically 6%.
10/1 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first 120
months (ten years) as opposed to the first 36 months. After that time the interest rate (and, therefore, the monthly
payments) may change every 12 (one year). As with a 3/1 ARM, 5/1 ARM and 7/1 ARM, the index is typically the One
Year Treasury Security index, the margin is typically 2.50% - 3.00%, the adjustment cap is typically 2% and the lifetime
cap is typically 6%.
No Income Verification Loan
These types of loans are available to borrowers who, for one reason or another, do not wish to or are unable to verify
their annual income. An example of such borrowers includes those who obtain revenue from sources they do not wish
to divulge or those that receive all or a portion of their income in cash. While available from some lenders as a fixed
or adjustable rate loans, the interest rate and /or costs my be slightly higher than normal to reflect the higher degree
of risk involved in loaning to borrowers who’s incomes have not been verified. Such risk is often offset to some
degree by borrowers who have significant variable assets or who are borrowing only a small percentage of a property’
s value.
Extended Lock Loan
This type of loan refers to a loan that enables a borrower to “lock in” an interest rate (generally at the same time of
submitting a loan application) for an extended period of time. Since most loan programs enable borrowers to lock for
45-60 days, a loan program that allows for longer periods of time such as 90, 120, or 180 days is considered an
extended lock loans.
6 Month Adjustable Rate Mortgage (ARM)
This type of loan has monthly payments that are based on a 30 year repayment schedule but the interest rate (and,
therefore, the monthly payments) may change every 6 months (this is referred to as the “adjustment period”). The
new rate is based upon fluctuations in an index (typically the One Year Treasury Security) and is calculated by adding
a specified amount to the index. The amount that is added to the index is called the “margin” (typically 2.50% -
3.00%). For example, if the index equals 5.0% at the time of adjustment and the margin equals 2.75%, the new
interest rate would be 7.75%. However this type of loan program usually has limits on how much the interest rate can
change (either up or down) at each adjustment date, compared with the interest rate being charged before the new
adjustment is made. Typically, this limit is 1% and is referred to as an “adjustment cap”. There is also a limit as to
how much the interest rate can change ( either up or down) from the initial interest rate for the entire life of the loan
(typically 6% and this is referred to as a “lifetime cap”. The monthly payment changes, as needed, at each adjustment
period, to reflect the adjusted rate.
1 Year Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 6 month ARM except for the fact that the adjustment period is every 12 months (one
year) as opposed to every 6 months. In addition, the adjustment cap on a 1 year ARM is typically 2% as opposed to
1%. The lifetime cap is typically 6%. The index is typically the One Year Treasury Security index and the margin is
typically 2.50% – 3.00%
2 Year Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 6 month ARM except for the fact that the adjustment period is every 24 months (two
years) as opposed to every 6 months. As with a 1 year ARM, the index is typically the One Year Treasury Security
index and the margin is typically 2.50% – 3.00%. Also, the adjustment cap is typically 6%.
3 Year Adjustable Rate Mortgage (ARM)
This type of loan (also referred to as a “3/3 ARM”) is similar to the 6 month ARM except for the fact that the
adjustment period is every 36 months (three years) as opposed to every 6 months. The index is typically the Three
Year Treasury Security index. As with a 1 or 2 year ARM, the margin is typically 2.50% - 3.00%), the adjustment cap
is typically 2% and the lifetime cap is typically 6%.
5 Year Adjustable Rate Mortgage (ARM)
This type of loan (also referred to as a “5/5 ARM”) is similar to the 6 month ARM except for the fact that the
adjustment period is every 60 months (five years) as opposed to every 6 months. The index is typically the Five Year
Treasury Security index. As with a 1 or 2 year ARM, the margin is typically 2.50% - 3.00%), the adjustment cap is
typically 2% and the lifetime cap is typically 6%.
3/1 Adjustable Rate Mortgage (ARM)
This type of loan has monthly payments that are based on a 30 year repayment schedule and the interest rate
remains fixed for the first 36 months (three years). After that time the interest rate (and, therefore, the monthly
payments) may change every 12 months (one year). This is referred to as the “adjustment period”. The new rate is
based upon fluctuations in an index (typically the One Year Treasury Security) and is calculated by adding a specified
amount to the index. The amount that is added to the index is called the “margin” (typically 2.50% - 3.00%). For
example, if the index equals 5.0% at the time of adjustment and the margin equals 2.75%, the new interest rate would
be 7.75%. However, this type of loan program usually has limits on how much the interest rate can change (either up
or down) at each adjustment date. Compared with the interest rate being charged before the new adjustment is
made. Typically, this limit is 2% and is referred to as an “adjustment cap”. There is also a limit as to how much the
interest rate can change ( either up or down) from the initial interest rate for the entire life of the loan (typically 6% and
this is referred to as a “lifetime cap”. The monthly payment changes, as needed, at each adjustment period, to reflect
the adjusted rate.
5/1 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first 60 months
(five years) as opposed to the first 36 months. After that time the interest rate (and, therefore, the monthly payments)
may change every 12 months (one year). As with a 3/1 ARM, the index is typically the One Year Treasury Security
index, the margin is typically 2.50% - 3.00%), the adjustment cap is typically 2% and the lifetime cap is typically 6%.
7/1 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first 84 months
(seven years) as opposed to the first 36 months. After that time the interest rate (and, therefore, the monthly
payments) may change every 12 months (one year). As with a 3/1 ARM and a 5/1 ARM, the index is typically the One
Year Treasury Security index, the margin is typically 2.50% - 3.00%), the adjustment cap is typically 2% and the
lifetime cap is typically 6%.
No Asset Verification Loan
This type of loan is similar to a No Income Verification Loan except it is uses by borrowers who do not wish to or are
unable to verify their assets as opposed to verifying their income. As with No Income Verification loans, the interest
rate and / or costs may be slightly higher than normal to reflect the higher degree of risk involved in loaning to
borrowers without verifying their assets. Here, such a risk is often offset to some degree by borrowers who have
significant verifiable incomes or who are only borrowing a small percentage of a property’s value.
No Green Card Loan
Many loan programs are not available to borrowers who are not citizens of the United Sates and who do not possess a
“green card” from the U.S. Department of Immigration & Naturalization. Such cards enable a borrower to remain in this
country indefinitely. Loan programs that are available to borrowers who are neither U.S. Citizens or possess a green
card, are referred to as “no green card loans”
We are available to help you with any questions that you might have. Our office number is: 239-354-0058, fax: 239-
354-0048, or email at Kathy@elitemortgageservicesinc.com, or heather@elitemortgageservicesinc.com.
others. I am available to help you with any questions that you might have. Just call me at (239) 354-0058, Fax (888)
607-4420 or e-mail me at info@elitemortgageservicesinc.com
Conforming Loan
A mortgage under the amount set by Congress as the maximum loan size eligible for purchase by either Fannie Mae
or Freddie Mac. Any loan amount above that figure is considered a Jumbo loan and is often subject to an interest rate
pricing premium as well as to some additional underwriting restrictions.
Jumbo Loan
A mortgage under the amount set by Congress as the maximum loan size eligible for purchase by either Fannie Mae
or Freddie Mac. Any loan amount above that figure is considered a Jumbo loan and is often subject to an interest rate
pricing premium as well as to some additional underwriting restrictions.
Fixed Rate Loan
A mortgage in which the interest rate does not change during the entire term of the loan.
Interest Only Loan
A mortgage is "interest only" if the monthly mortgage payment does not include any repayment of principal for some
period. The payment consists of interest only. During that period, the loan balance remains unchanged. For
example, if a 30 year fixed rate loan of $100,000.00 at 8.5% is interest only, the payment is.06/12 times $100,000.00,
or $708.34. Otherwise, the payment would be $768.92. This is the "fully amortizing payment". The payment, that if
maintained over the term of the loan, will pay if off completely. The interest only loan thus reduces the monthly
payment by 7.9%. A loan that is interest only for the full term would not amortize. The loan balance would be the
same at term as it was at the outset.
Balloon Loan
A mortgage which is payable in full after a period that is shorter than the term. In most cases, the balance is
refinanced with the payment of all debts. This type of loan has a fixed monthly payment for the term of the loan (for
example five years) that are based on a 30 year repayment schedule. At the end of the five year term, the
outstanding principal balance of the loan is due, plus any unpaid interest.
First Time Home Buyer Loan
A loan is considered a first time home buyer loan when it has one or more features that are available only to first time
home buyers. For example, a lender may reduce its interest rate (typically by one eighth to one quarter of one
percent, reduce or eliminate its closing costs and, if an adjustable rate mortgage, reduce its margin. (typically by one
quarter of one percent) Such a loan may also have less stringent loan qualification guidelines.
5/25 Adjustable Rate Mortgage
This type of loan has monthly payments that are based on a 30 year repayment schedule and the interest rate
remains fixed for the first 60 months (five years). After that time, the interest rate (and therefore, the monthly
payments) may change once for the remaining 25 years of the loan. The interest rate is based upon fluctuations in
an index (typically the fixed interest rate offered at that time by the Federal National Mortgage Association, 60 day
index. The amount that is added to the index is called the "margin". For example, if the index equals 5.0% at the time
of the adjustment, and the margin equals 1.0%, the new interest rate would be 6.0%. However, this type of loan
program usually has limits on how much the interest rate can increase or decrease at the time of the interest rate
adjustment. Typically, the interest rate cannot increase more than 6% from the initial interest rate, nor decrease more
than 1.5% from the initial rate.
7/23 Adjustable Rate Mortgage
This type of loan is similar to the 5/25 Adjustable Rate Mortgage, except for the fact that the monthly payments remain
fixed for the first 84 months (seven years) as opposed to five years and after that time the interest rate may change
once for the remaining 23 years of the loan. As with the 5/25 Adjustable Rate Mortgage, the index is typically the fixed
interest rate offered at the time by the Federal National Mortgage Association (60 day mandatory yield rate), the
margin is added to the index to determine the interest rate adjustment and the rate cannot increase or decrease by
more than a given percentage.
3-2-1 Buy down loan
This type of loan program is based on an interest rate (actual rate) that does not change over the term of the loan
and has fixed monthly payments that are made during the first 36 months (three years), are calculated based on an
interest rate that is less than the actual rate. The first 12 monthly payments of the loan are calculated based on an
interest rate that is 3% less than the actual rate. For the second year of the loan, payments 13 through 24 are based
on an interest rate that is 2% less than the actual rate of the loan. For the third year of the loan, payments 25
through 36 are based on an interest rate that is 1% less than the actual rate. After the third year, the monthly
payments to be made over the remaining 27 years of the loan are based on the actual rate.
This type of loan is typically used to help borrowers who are unable to qualify for a loan at current interest rates. By
"buying down" the interest rate the borrower decreases the initial monthly payments that are required to be made
which increases the borrower's ability to qualify for the loan. The cost of "buying down" an interest rate for a period of
time is generally determined by calculating the difference between (a) the total monthly payments that would have
been made during the buy down period if the loan did not have a buy down feature and (b) the total monthly payments
to be made during this same period with the buy down feature in place. This amount is generally paid for at the time
of closing.
2-1 Buy down loan
This type of loan is similar to a 3-2-1 Buy down loan however, the buy down feature of the loan occurs during the first
two years of the loan as opposed to the first three years. Accordingly, the first 12 monthly payments of the loan are
calculated based on an interest rate that is 2% less than the actual rate and for the second year of the loan,
payments 13 through 24 are calculated based on an interest rate that is 1% less than the actual interest rate.
1-0 Buy down loan
This type of loan is similar to a 3-2-1 Buy down loan and a 2-1 Buy down loan, however, the buy down feature of the
loan occurs only during the first year of the loan as opposed to the first two or three years. Accordingly, the first 12
monthly payments of the loan are calculated based on an interest rate that is 1% less than the actual rate.
Blended Loans
Since fixed rate conforming loans generally have lower interest rates than fixed rate jumbo loans, some lenders offer
borrowers seeking to borrow more than the conforming loan amount, a loan that allows the borrower to take
advantage of the lower fixed interest rate of a conforming loan on a portion of their loan that does not exceed the
conforming loan limit. This feature is then blended together with a variable interest rate feature on that portion of the
loan amount that exceeds the conforming loan limit. For example, if the conforming loan limit is $333,700, a consumer
looking for a fixed rate loan of more than $333,700 can obtain a conforming fixed interest rate on the first $333,700 of
their loan provided they are willing to have a variable interest rate on that portion of their loan that exceeds $333,700.
The variable interest rate portion is often similar to a home equity loan which is typically tied to the interest rate known
as the "prime rate".
B/C Credit Loan
These types of loans are available to borrower who have or have had credit problems such as being late on or
defaulting on the repayment of loans or credit cards. Although such loans are available as fixed rate or adjustable
rate mortgage loans, the interest rate and/or costs associated with such loans are generally higher than loans
available to borrowers who do not have a history of credit issues to reflect the fact that the risk associated with such
loans is generally higher. Borrowers who do not have a history of credit issues are said to have "A" credit. Those with
a history of credit issues are said to have "B" credit of "C" credit depending on the severity of the credit issues.
Assumable Loan
This type of loan does not have to be paid off by a borrower when the borrower sells his/her home. Instead, the new
buyer of the home may assume the obligation of the initial buyer to repay the loan in accordance with the terms of the
loan. Generally, most loans are not assumable and some that are, may be subject to the lender's approval of the new
borrower and/or the lender's ability to modify the terms of the loan.
Second Home Loan
This type of loan is used to purchase or refinance a property other than a borrower's principal residence. In most
instances, such a property is a borrower's vacation home (or "second home"). Provided that the property is not
strictly an investment property, the interest rate and costs charged on such loans will generally be the same as those
available on loans used to purchase or refinance a borrower's principal residence.
No Income/No Asset Verification Loans
This type of loan is similar to the No Income Verification Loan and a No Asset Verification Loan, except it is used by
borrowers who do not wish to or are unable to verify their income and their assets. Once again, the interest rate
and/or costs for such loans may be slightly higher than normal to reflect the higher degree of risk involved in loaning
to borrowers without verifying their income or assets. Such risk is often offset, to some degree, by borrowers who
have a significant history or paying loans of a similar type as the one being sought or who are borrowing only a small
percentage of a property's value.
Construction Loan
This type of loan is typically used to finance the construction of a home. It may or may not also include the purchase
of the land upon which the home is to be built. Unlike a typical mortgage loan where the entire amount of the loan is
disbursed to the borrower at the time the loan transaction is consummated, a construction loan typically involves a
series of disbursements which are linked to a construction schedule. Some construction loans have fixed interest
rates, others have variable interest rates. In addition, some construction loans automatically convert to a regular
mortgage (referred to as "permanent" financing) once construction has been completed, while others require another
loan transaction to take place so the borrower can payoff the construction loan and obtain permanent financing.
Relocation Loan
This type of loan is offered by lenders to borrowers who are relocating their principal residence to the lender's area.
Although such loans have most or all of the features associated with typical mortgage loans used to purchase a
borrower's principal residence, relocation loans often have flexible loan qualification guidelines to accommodate
situations that arise during a borrower's relocation to another area. For example, even though a borrower's spouse
has not obtained a job in the area they are moving to, the lender may take all or a portion of the spouse's former
employment income into consideration based on the anticipation of future employment
Bridge Loan
This type of loan is offered by lenders to borrowers who plan to use money from the sale of their current property to
purchase their new property but are moving into the new property before the sale of their current property takes
place. In such instances, a bridge loan is obtained, (based on and secured by the borrower’s equity in their current
property), to “bridge” the time between when the borrower buys their new property and the time when the borrower
sells their current property at the time of sale of the current property, the proceeds from such sale are used to pay off
the bridge loan. Typically, bridge loans are for a short period of time (e.g. 3-6 months) and feature adjustable interest
rates tied to an index such as the prime interest rate
Convertible Loan
This type of loan refers to an adjustable rate mortgage that contains a feature which allows a borrower to convert their
loan from an adjustable rate mortgage to a fixed rate mortgage. Such loans generally contain a time period during
which the borrower may exercise his/her option to convert (typically between the 13th and 60th month of the loan).
The new fixed interest rate that the borrower converts to is based upon fluctuations in an index (typically the fixed
interest rate offered at the time of the Federal National Mortgage Association). (60 day mandatory yield rate) and is
calculated by adding a specified amount to the index (typically .625% - 1.25%). For example, if the index equals 7.0%
at the time of conversion and the margin is 1.0%, the new interest rate would be 8.0%. Some lenders charge
borrowers a fee to exercise their conversion option, however, such fees generally do not exceed $250.
Float down Loan
This type of loan refers to a loan that enables a borrower to “lock in” an interest rate (generally at the time of
submitting a loan application) and obtaining a better interest rate in the event that rates decrease between the time of
submitting the application and the time the loan closing occurs. The initial “float down” does not occur unless the
decrease in the interest rate equals or exceeds .375% (3/8 of one percent).
Land Loan
While the typical mortgage loan involves both a structure and the land upon which the structure is built, this type of
loan involves only land on which a structure has yet to be built.
10/3 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 7/3 ARM except for the fact that the interest rate remains fixed for the first 120
months (10 years) as opposed to the first 84 months. After that time, the interest rate may change every 36 months.
As with a 7/3 arm, the index it typically the Three Year Treasury Security index , the margin is typically 2.50% - 3.00%,
the adjustment cap is typically 2% and the lifetime cap is typically 6%.
10/1 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first 120
months (ten years) as opposed to the first 36 months. After that time the interest rate (and, therefore, the monthly
payments) may change every 12 (one year). As with a 3/1 ARM, 5/1 ARM and 7/1 ARM, the index is typically the One
Year Treasury Security index, the margin is typically 2.50% - 3.00%, the adjustment cap is typically 2% and the lifetime
cap is typically 6%.
No Income Verification Loan
These types of loans are available to borrowers who, for one reason or another, do not wish to or are unable to verify
their annual income. An example of such borrowers includes those who obtain revenue from sources they do not wish
to divulge or those that receive all or a portion of their income in cash. While available from some lenders as a fixed
or adjustable rate loans, the interest rate and /or costs my be slightly higher than normal to reflect the higher degree
of risk involved in loaning to borrowers who’s incomes have not been verified. Such risk is often offset to some
degree by borrowers who have significant variable assets or who are borrowing only a small percentage of a property’
s value.
Extended Lock Loan
This type of loan refers to a loan that enables a borrower to “lock in” an interest rate (generally at the same time of
submitting a loan application) for an extended period of time. Since most loan programs enable borrowers to lock for
45-60 days, a loan program that allows for longer periods of time such as 90, 120, or 180 days is considered an
extended lock loans.
6 Month Adjustable Rate Mortgage (ARM)
This type of loan has monthly payments that are based on a 30 year repayment schedule but the interest rate (and,
therefore, the monthly payments) may change every 6 months (this is referred to as the “adjustment period”). The
new rate is based upon fluctuations in an index (typically the One Year Treasury Security) and is calculated by adding
a specified amount to the index. The amount that is added to the index is called the “margin” (typically 2.50% -
3.00%). For example, if the index equals 5.0% at the time of adjustment and the margin equals 2.75%, the new
interest rate would be 7.75%. However this type of loan program usually has limits on how much the interest rate can
change (either up or down) at each adjustment date, compared with the interest rate being charged before the new
adjustment is made. Typically, this limit is 1% and is referred to as an “adjustment cap”. There is also a limit as to
how much the interest rate can change ( either up or down) from the initial interest rate for the entire life of the loan
(typically 6% and this is referred to as a “lifetime cap”. The monthly payment changes, as needed, at each adjustment
period, to reflect the adjusted rate.
1 Year Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 6 month ARM except for the fact that the adjustment period is every 12 months (one
year) as opposed to every 6 months. In addition, the adjustment cap on a 1 year ARM is typically 2% as opposed to
1%. The lifetime cap is typically 6%. The index is typically the One Year Treasury Security index and the margin is
typically 2.50% – 3.00%
2 Year Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 6 month ARM except for the fact that the adjustment period is every 24 months (two
years) as opposed to every 6 months. As with a 1 year ARM, the index is typically the One Year Treasury Security
index and the margin is typically 2.50% – 3.00%. Also, the adjustment cap is typically 6%.
3 Year Adjustable Rate Mortgage (ARM)
This type of loan (also referred to as a “3/3 ARM”) is similar to the 6 month ARM except for the fact that the
adjustment period is every 36 months (three years) as opposed to every 6 months. The index is typically the Three
Year Treasury Security index. As with a 1 or 2 year ARM, the margin is typically 2.50% - 3.00%), the adjustment cap
is typically 2% and the lifetime cap is typically 6%.
5 Year Adjustable Rate Mortgage (ARM)
This type of loan (also referred to as a “5/5 ARM”) is similar to the 6 month ARM except for the fact that the
adjustment period is every 60 months (five years) as opposed to every 6 months. The index is typically the Five Year
Treasury Security index. As with a 1 or 2 year ARM, the margin is typically 2.50% - 3.00%), the adjustment cap is
typically 2% and the lifetime cap is typically 6%.
3/1 Adjustable Rate Mortgage (ARM)
This type of loan has monthly payments that are based on a 30 year repayment schedule and the interest rate
remains fixed for the first 36 months (three years). After that time the interest rate (and, therefore, the monthly
payments) may change every 12 months (one year). This is referred to as the “adjustment period”. The new rate is
based upon fluctuations in an index (typically the One Year Treasury Security) and is calculated by adding a specified
amount to the index. The amount that is added to the index is called the “margin” (typically 2.50% - 3.00%). For
example, if the index equals 5.0% at the time of adjustment and the margin equals 2.75%, the new interest rate would
be 7.75%. However, this type of loan program usually has limits on how much the interest rate can change (either up
or down) at each adjustment date. Compared with the interest rate being charged before the new adjustment is
made. Typically, this limit is 2% and is referred to as an “adjustment cap”. There is also a limit as to how much the
interest rate can change ( either up or down) from the initial interest rate for the entire life of the loan (typically 6% and
this is referred to as a “lifetime cap”. The monthly payment changes, as needed, at each adjustment period, to reflect
the adjusted rate.
5/1 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first 60 months
(five years) as opposed to the first 36 months. After that time the interest rate (and, therefore, the monthly payments)
may change every 12 months (one year). As with a 3/1 ARM, the index is typically the One Year Treasury Security
index, the margin is typically 2.50% - 3.00%), the adjustment cap is typically 2% and the lifetime cap is typically 6%.
7/1 Adjustable Rate Mortgage (ARM)
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first 84 months
(seven years) as opposed to the first 36 months. After that time the interest rate (and, therefore, the monthly
payments) may change every 12 months (one year). As with a 3/1 ARM and a 5/1 ARM, the index is typically the One
Year Treasury Security index, the margin is typically 2.50% - 3.00%), the adjustment cap is typically 2% and the
lifetime cap is typically 6%.
No Asset Verification Loan
This type of loan is similar to a No Income Verification Loan except it is uses by borrowers who do not wish to or are
unable to verify their assets as opposed to verifying their income. As with No Income Verification loans, the interest
rate and / or costs may be slightly higher than normal to reflect the higher degree of risk involved in loaning to
borrowers without verifying their assets. Here, such a risk is often offset to some degree by borrowers who have
significant verifiable incomes or who are only borrowing a small percentage of a property’s value.
No Green Card Loan
Many loan programs are not available to borrowers who are not citizens of the United Sates and who do not possess a
“green card” from the U.S. Department of Immigration & Naturalization. Such cards enable a borrower to remain in this
country indefinitely. Loan programs that are available to borrowers who are neither U.S. Citizens or possess a green
card, are referred to as “no green card loans”
We are available to help you with any questions that you might have. Our office number is: 239-354-0058, fax: 239-
354-0048, or email at Kathy@elitemortgageservicesinc.com, or heather@elitemortgageservicesinc.com.
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