What is Home Loan?

Adjustable rate mortgage (ARM)
No, not the thing hanging from your shoulder. This is an "adjustable-rate mortgage." The interest rate changes to reflect changes in the credit market out in the great, wide world. The first-year rate (otherwise known as the teaser rate) is generally a couple of percentage points below the market rate. There are also upward limits above which the interest rate isn't allowed to go -- this is called the cap. If your teaser rate is 4%, and you have a five-point cap, then the highest that your interest rate could go would be 9%. What's more, the amount that the interest rate can rise each year is limited, usually to one or two percentage points per year. The frequency at which the rate adjusts may vary; make sure you know these features. If you're considering an ARM, think about the worst-case scenario. What if interest rates go up, and your ARM adjusts to its maximum? What will that maximum be, and when will it kick in? Will you be able to afford the payments? And that, folks, is it: the two major types of loans. Now let's look at some subsets and variations.

COFI Loan
One type of ARM is a COFI loan. COFI stands for "cost of funds index." This loan doesn't have any caps, and adjusts monthly. It is, in a sense, the most adjustable ARM of all, since it isn't fixed for a certain time. But the index to which it is tied is in many ways the most stable index of them all: It is tied to the rate that banks have to pay their depositors to keep their money (i.e., checking accounts, savings accounts, certificates of deposit). It tends to be a slow-moving index. The COFI loan has certain advantages in that you can vary the amount of your payments as you wish (paying off more or less each month). If this suits your temperament and your budget, inquire about it since it is often not brought up as an option.

Hybrid Loan
Just as in a candy store, why have two flavors when we can have a mix and make three? Sure, your hands may get sticky and your tongue can turn green, but we like freedom of choice. Typically a hybrid loan is fixed for 1, 3, 5, 7, or 10 years and then converts to an ARM. This means you get stability for a given amount of time, and then your fate is cast to the winds of the prevailing interest rates. If you imagine a fixed-rate mortgage as a motorboat, and an ARM as a sailboat, then you get to run the ship under its own engines for a time before you unfurl those sails and hope for favorable winds.

Two-Step Loans
These loans attempt to have the best of both worlds: the stability of a fixed loan with the lower rates of an ARM. They appear in their most common forms as 5/25 or 7/23 loans. Math buffs among you will note that the numbers straddling those slashes add up to 30, as in a 30-year loan. This means that your interest rate will be fixed for the first five or seven years, then the loan adjusts in one of two ways: It will either become an ARM, adjusting annually, or a fixed-rate loan. The beginning interest rate for these loans is generally lower than that of a standard 30-year fixed loan.

Balloon Loans
These tend to be short-term loans. You borrow money for, say, three or seven years, and the loan is amortized as though it were a 30-year loan. At the end of the three- or seven-year period, you owe the bank the entire remaining principal, in one lump sum -- like a big balloon. Again, these loans tend to have lower interest rates than the standard 30-year mortgage. If you're not planning to stay too long in your house, you might be interested in such a loan. The reasoning goes like this: You pay less in interest -- saving potentially thousands of dollars -- over the course of the loan than you would with a 30-year fixed. So you're less out-of-pocket when it comes time to sell. Keep in mind, though, that if for some reason your plans change and you want to stay in the house, you're going to have to pay off the loan in full -- by getting another loan, at the prevailing interest rates, and with the attendant costs of getting that new loan. So it isn't for the faint of heart or irresolute of mind.

High Recommended Books

1.

Who Says You Can't Buy a Home! by David Reed (Paperback - May 30, 2006) Buy new:$14.00    65 Used & new from $3.79 Excerpt - page 7: "... process and this isn't the first time you've gotten a o omfr ertyprop .32$5 eh nsow erptExc ro - msai gepa ot :5 uireacq ..". uredsec iationAssoc hereit MA)(FN yb remo a onlycomm gagemort ledcal no nieFan vableimmo aeM ertyprop nda ro het yb eF a etysur onlycomm edus ni a berMem ateSt home loan, I suggest staying away from online compa- nies. ..."

2.	How to Get the Best Home Loan, 2nd Edition by W. Frazier Bell (Paperback - April 13, 2001) Buy new: $19.95    45 Used & new from $0.60 Excerpt - page 6: "... Ginnie Mae, known to the more refined as the Federal Home Loan Mortgage Corp. (FHLMC) and the Gov- ernment National Mortgage Association ..."

3.	How to Afford Your Own Log Home, 5th: Save 25 Percent without Lifting a Log by Carl Heldmann (Paperback - Jun 1, 2002) Buy new:$17.05    40 Used & new from $2.79

4.

The Loan Officer's Practical Guide to Residential Finance by Thomas A. Morgan (Paperback - Jan 2, 2007) ta urYo si meHo meHo gageMort n?ALoa nd2 ome"h tionEdi an"lo yb si ndyRa a nsonJoh ditcre rback(Pape ot - a ulJ umercons 91 orf 02)20 het uyB hasepurc 46 new:$13. ro sp;&nb rmationtransfo 73 fo edUs het mp;&a vatepri ewn vableimm Buy new: $52.25    3 Used & new from $52.24 Excerpt - page 23: "... As a result, no one could afford to buy a home or take out a mortgage. The banks, too, were unwilling to lend on a fixed rate basis. This was due to another phenomenon - the first Savings and Loan (S&L) crisis. ..."

5.

Smart Money Guide to Bargain Homes by James Weidemer (Paperback - Feb 1, 1994) 15 Used & new from $7.88 Excerpt - page 50: "... like mortgage insurance, in that the lender who acquires a home out of foreclosure can deed it to the VA, which will pay off the loan balance and take title to the house. ..."

6.

Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan by David Reed (Paperback - Sep 30, 2004) Buy new:$11.53    49 Used & new from $8.19 Excerpt - page 9: "... Today, your loan is approved first, then verified later. Those of you who have applied for a home loan within the past ten years or so will recognize ..."

7.

Kit Homes: Your Guide to Home-Building Options, from Catalogs to Factories by Rich Binsacca (Paperback - Jul 1, 2006) Buy new:$12.71    47 Used & new from $2.29 Excerpt - page 20: "... progress of your home's completion instead of a lump sum. Common sources of Refinanced (loan): A loan cash include a savings, checking, or penalty-free investment ..."

8.	Home Closing Checklist by Robert Irwin (Paperback - Aug 14, 2003) Buy new:$11.01    24 Used & new from $3.69 Excerpt - page 128: "... was put on the property, but the value of the home has risen while the loan has gone down.) If the loan is valuable to you, ..."

So You Want to Refinance: An Insiders Guide to Refinancing Adjustable Rate Mortgages and Home Loans by Kristina, Benson (Paperback - Sep 20, 2006) oh ditcre rback(Pape ot - a ulJ umercons 91 orf 02)20 het uyB hasepurc 46 new:$13. ro sp;&nb rmationtransfo 73 fo edUs het mp;&a vatepri ewn vableimmo omfr ertyprop .32$5 eh nsow erptExc ro - msai gepa ot :5 uireacq ..". uredsec iationAssoc hereit MA)(FN yb remo a onlycomm gagemort ledcal no nieFan vableimmo aeM ertyprop nda ro het yb eF a etysur onlycomm edus ni a berMem ateSt Buy new: $19.95    20 Used & new from $18.98 Excerpt - page 6: "... So, you want to Refinance your Home Loan? 1 The Industry So, you are interested in purchasing or ..."

A Survival Guide for Buying a Home by Sid Davis (Paperback - Feb 2004) Buy new:$13.46    27 Used & new from $4.93 Excerpt - page 13: "... some credit problems rather than getting locked into a subprime loan. However, it can be a difficult call. Some lenders argue that it's better to get a home now with a subprime loan than wait until real estate ..."

How to Save Thousands of Dollars on Your Home Mortgage, 2nd Edition by Randy Johnson (Paperback - Jul 19, 2002) Buy new:$13.46    37 Used & new from $5.32 Excerpt - page 5: "... Association (FNMA), more commonly called Fannie Mae, and the Federal Home Loan Mortgage Corporation (FHLMC), called Freddie Mac. ..."