Loan Types Fixed Rate Mortgages The traditional fixed rate mortgage is the most common type of loan programs, where monthly principal and interest payments never change during the life of the loan. Adjustable Rate Mortgages (ARM) Adjustable Rate Mortgages (ARM)'s are loans whose interest rate can vary during the loan's term. These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions. Hybrid ARMs (3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM) Hybrid ARM mortgages or fixed-period ARMs, combine features of both fixed-rate and adjustable-rate mortgages. Interest Only Mortgages A mortgage is called “interest only” when its monthly payment does not include the repayment of principal for a certain period of time. Components of an ARM To understand an ARM, you must have a working knowledge of its components. Commonly Used Indexes for ARMs This is a list of the most commonly used indexes by ARM lenders. Balloon Mortgages Balloon mortgages have a note rate that is fixed for an initial period of time, and then the remaining principal balance is due at the end of the term. Graduated Payment Mortgages Graduated Payment Mortgage is a loan where the payment graduates (increases) annually for a predetermined period (e.g. five or ten years), and then becomes fixed for the duration of the loan. Accounts Receivable Loans One of the quickest and most widely used method of secured lending. This is the major source of collateral for commercial finance companies and has recently been entered into by many banks. Asset Based Loans Usually offered at a 3 to 6 point spread between the cost of money they loan to their customers. This type of loan is secured by assets of the business and the business owners credit history. Accounts Receivable Financing A separate account is established with a commercial lender where remittances are deposited. The Lender has a simultaneous deposit to your regular account, less daily interest. Factoring The oldest way of loaning against receivables. Technically, it is not a loan against the receivables because the factor actually purchases the receivables and there is no further recourse for lack of payment on the receivables. The borrower is not responsible for collection of the receivables. Sale-Leaseback In lease purchase agreements, the property can be new or used. It is sold to a lease company who in turn leases it back to the original owner or the intended user. It can be used for acquisitions of equipment, real estate and the entire business as part of acquisition financing. Flooring Best known with automobile and truck dealers. It is available with all types of distributors such as appliances, industrial machine tools, air compressors and other standard items that have a rapid turnover. The lenders finance the goods while they are on the dealers premises. They also tend to provide the end customer with time financing when the goods are sold. Unsecured Loans Simplest method of financing. Commercial banks are the major source. Typically made to provide working capital to an established company or individual. This requires the business owner to personally guarantee the debt. Working Capital Loan Usually for the length of the selling season to a period for up to one year. Typically require that they be paid off for a period of 30 to 60 days before they are re-established. By resting the loan for a period, you establish that the working capital loan is not part of the equity structure of the company. Warehouse Loan Similar to other types of inventory loans where a lender advances funds against a portion of the goods in the warehouse. The turnover of inventory is important in considering loand on warehouse inventory. New and Used Equipment Loans A non-working capital loan would be a loan on equipment. A lien is used to secure this loan. Installment Loans Made for almost any productive purpose and may be granted for any period that the bank allows. Monthly payments and may be refinanced at lower rates. Time Purchase Loans Available to both the retailer and consumer to finance automobiles, household equipment, boats mobile homes industrial equipment, etc., and are made for varying periods of time depending on the product. This includes accounts receivable financing, indirect collections and factoring. Inventory Loans Available if inventory or merchandise qualify as collateral. Stiff requirements and are limited to certain classes of inventory. SBA Loans Opportunity for Business Finance Consultants to fund loans for start up companies up to $2 million. For buying a business, inventory financing, buying real estate & more. Qualifying is easier because the SBA guarantees up to 75 %. Lines of Credit After presenting your financial statement and loan request to the bank, hopefully they will establish that you have an open line of credit up to a specific amount generally up to a period of one year. What kind of loan program is best for you? So what kind of mortgage is best for you? Fixed rate? Adjustable rate? Government loans? The truth is, there is no one correct answer. Fixed and Variable Rates One of the most common questions a Certified Loan Broker answers is, "should I choose a fixed or adjustable rate mortgage (ARM)?" The answer depends on many different factors including your income at the time of qualifying, the lender you are working with, current market conditions and how long you plan to stay in the house. Lets talk about your income first. Many first time buyers who are in the beginning stages of their careers will choose an adjustable rate over a fixed rate. The main reason is that, while the interest rate on the adjustable will likely increase over the coming years, the borrowers level of income can out pace the increased monthly payments. For this reason, adjustable rates tend to be the loan of preference for new college graduates who are beginning work in the field they studied. On the opposite end of the spectrum are high-income borrowers and real estate investors. These people tend to prefer adjustable rates because of the opportunity to make reduced monthly payments. High-income borrowers will then either invest the difference between the fixed rate and ARM payments, or use the starting period when the rate is very low to apply large amounts of money to the principle balance. This will enable them to pay off the loan faster and minimize future payment increases since they will be financing less money. Because of the lower initial interest rate, adjustable rates result in a lower mortgage payment than the standard fixed-rate mortgage. This lower monthly mortgage payment can assist a borrower with high debt ratios in qualifying for a larger mortgage. This allows a borrower to increase their purchasing power in order to buy a more expensive home. If your income is not an issue, the next thing to consider is the lender that you choose for your loan. Some lenders actually prefer to write adjustable rate loans because, over the long run, it will provide them with more interest income. Because there is an additional profit in the loan, ARM lenders may make it easier for you to qualify. This is where your Certified Loan Broker can be particularly helpful. Because Certified Loan Brokers work closely with many lenders, they know which lenders prefer to do fixed or adjustable rate loans and can steer your loan in the proper direction. Another issue to consider is the current real estate market conditions. When interest rates are down, many lenders are apprehensive to offer ARMs because it is more difficult to find investors. The opposite is also true when interest rates are higher. This is also an area where a Certified Loan Broker can be particularly helpful since they are actively engaged in the real estate market and know the current trends. The last issue to consider in deciding between fixed and adjustable rates is how long you intend to occupy the property. As a general rule of thumb, most people will be better off with a fixed rate if they plan to be in the property for more than five years. At that point, your interest rate for an ARM will usually have increased substantially so your payment will be much higher than if you had taken a fixed rate. On the other hand, if you are planning to stay less than 5 years, then the thought of buying 30-year money is probably not very appealing. Also, as we have already discussed, if you put extra money to principle when your interest rate is low it will help to keep large payment fluctuations in check. You should also consider that adjustable rate mortgages have built in safety measures known as "caps" that will help limit how high your interest rates can rise per year. Most adjustable rates are structured so that the annual interest rate cannot rise by more than 2 percent per year, although some loans have caps that are even more conservative. Other loans will not regulate the interest rate at all but instead limit how high the payment can rise each year. You should consult with a Certified Loan Broker to help you determine if a fixed or adjustable rate loan is right for you. |
| New Visions Financial Group Inc. |
Lending Types
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |