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 Just as shopping for a home includes working with a Realtor and the evaluation of many different home styles and options, finding the right financing is equally important. Baytree National Bank and Trust Company will provide you professionalism and experience while offering you competitive interest rates and outstanding service. Our job begins with fully understanding your needs and both short and long term goals and finding a loan that is right for you. We will discuss various options with you and learn what type of financing is right for your situation. We evaluate the market, all of the current products, rates and underwriting guidelines to find the very best loan product for your needs.
It wasn't too long ago that a 30 year fixed rate mortgage was your only option. Many loan programs exist today and to help you explain how they work, we have provided the history and descriptions of the basic loan programs available. Our mortgage department will explain the various loan programs offered.
The following factors should be considered when evaluating loan programs:
- Importance of payment security.
- Ability to qualify at market rates for loan amount selected.
- Anticipated term of occupancy.
- Expectation of stable versus rising income.
- Level of market rates - high versus low.
- Possibility of significant rate changes.
- Existence of up-front costs.
- Desire for rapid equity build-up.
The following program descriptions are intended to help you understand the benefits and drawbacks of each of the various instruments. If you would like more information on personal mortgages please contact:
JT Current
(414) 321-5875 or 1-800-798-7210 extension 122
Fax number 1-800-798-6960
email: jt.current@baytreelending.com
If you like, you can click on the link below to access our mortgage loan application. Print out the form, complete it and fax it to our secure fax line at 1-800-798-6960. Once we receive your loan application you will receive a phone call within 1 business day. You will then receive a loan decision within 1 additional business day, and if approved we will issue you a pre-approval commitment immediately, which will be valid for 90 days. Loan approval is subject to you providing accurate and complete information that meets applicable secondary market credit and property approval guidelines.
Types of Mortgages
Fixed Rate Mortgage: A standard fixed-rate loan has a fixed interest rate, a fixed monthly payment, and is fully amortizing over a given number of years (for example, 15 or 30 years). A portion of each monthly payment covers the interest due on the loan. The remaining portion is applied toward the reduction of the principal balance. Regular payments systematically reduce the loan balance until the loan is paid in full.
The standard fixed-rate mortgage is still the most popular mortgage loan type. Its popularity is tied to the security that a fixed rate and fixed payment offer to borrowers who are reluctant to assume the risk of fluctuating interest rates. The availability of different loan terms offers borrowers the security of a fixed payment but allows for flexibility in the size of the monthly mortgage payment as well as how quickly the principal balance can be paid down. Several fixed-rate loan terms exist:
30-Year vs. 15-Year
30-Year Mortgage:
How it Works: The borrower pays down the entire principal in 360 equal monthly payments.
During the first 10 years, more than 84% of the monthly payment is applied to interest and therefore is tax deductible. Pay-down of principal occurs slowly. It is not until the 22nd year that 50% of the principal balance is paid off. Therefore, a 30-year term is appropriate for borrowers for whom an affordable monthly payment is more important than the rapid reduction of principal.
15-Year Mortgage:
How it Works: The borrower pays down the entire principal in 180 equal monthly payments.
The interest rate is approximately 1% lower than that of a 30-year, fixed-rate loan, but because of the reduced loan term, the monthly payments are approximately 28% higher. About 50% of the principal balance is paid off in the first nine years. Clearly, this product appeals to borrowers whose main concern is rapid equity build-up.
When rates are low, this product is also popular with borrowers who are refinancing 30-year loans. Such borrowers will often forgo the savings in monthly payment that lowering the interest rate on their 30-year loan would produce and instead select a 15-year term and its corresponding accelerated amortization. This choice not only shortens the payment period, but also substantially reduces the borrower's total interest paid on the loan.
Other loan terms have been created over the last decade, such as 20 and 25-year terms. While not as popular as the 30 or 15-year terms, they do offer additional options regarding size of monthly payments and speed of principal pay-down.
Balloon Mortgages:
How it Works: The borrower makes equal monthly payments that are typically based on a 360-month pay-off schedule.
Instead of taking 30 years to pay down the mortgage, payment in full of the outstanding principal balance is due at a specific time prior to the end of the 360-month period. Hence the name "balloon." This balloon payment, typically after 60, 84 or 120 months (or 5, 7, or 10 years), allows lenders to offer slightly lower interest rates than a 30- year, fixed-rate mortgage because their funds are not tied up for 30 years and therefore are available to be reinvested at market rates. Most borrowers who take advantage of the attractive interest rates offered by balloon mortgages anticipate selling or refinancing the property prior to the end of the balloon period.
Adjustable Rate Mortgages:
Adjustable-rate mortgages (ARMs) have fluctuating interest rates and the potential for changing payment amounts. ARMs help lenders cover the cost of lending money in a changing economy by transferring a portion of the interest rate risk to borrowers. In exchange for borrowers sharing the risk, lenders offer an initial interest rate that is substantially lower than the rate for fixed-rate loans.
1-Year ARM: A one-year ARM adjusts annually, with each adjustment typically limited to a 1% to 2% increase. A maximum lifetime cap of 6% is common. One-year ARMs offer attractive initial interest rates to borrowers who are willing to accept the uncertainty of future rate and payment changes. If the borrower puts less than 20% down, the borrower is typically qualified using the maximum first-year adjustment rate.
3-Year, 5-Year, 7-Year or 10-Year ARM: These ARMs have initial adjustment periods of three years, five years, seven years or ten years respectively, after which they convert to annual adjustment periods similar to a one-year ARM. Each adjustment is typically limited to a 2% increase with a lifetime cap of 5% or 6%. Variations of the basic ARM programs do exist.
Convertible Arms:
Many ARM programs offer the option to convert from an adjustable rate to a fixed rate at specified times during the term of the loan. This option is attractive to many borrowers, but is not without additional cost. Lenders generally collect a fee of between $100 and $250 to cover the administrative costs of the conversion. In addition, the new rate is generally higher than the market rate at that time for a fixed-rate loan. Borrowers should be sure to weigh the benefits of choosing a convertible ARM versus the potential costs of a traditional refinance if rates change.
Calculator
We look forward to working with you. Please call J.T. Current with any questions you may have at (414) 321-5875.
New Construction
We can also finance the new construction of your home with a Residential Construction Loan. We make your building process easier by streamlining the draw process so you can pay your sub-contractors on time and keep the work moving.
For more information, please contact Pamela Drysdale at (847) 615-3306 or via email at pamela.drysdale@baytreebank.com
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