Loan Products

What is a Mortgage?

A mortgage represents a loan or lien on a property/house that has to be paid over a specified period of time. Think of it as your personal guarantee that you'll repay the money you've borrowed to buy your home. Mortgages come in many different shapes and sizes, each with its own advantages and disadvantages. Make sure you select the mortgage that is right for you, your future plans, and your financial picture.

What is an amortization schedule?

The month-by-month allocation of your monthly payment to the loan's interest and principal is called an amortization schedule. With most loans you pay off the interest on the loan before you pay off the principal (or the actual amount you borrowed). Your lender will provide an amortization schedule to show you how the percentage of your principal paid off increases with every payment, while the percentage of interest decreases.

Choosing the right mortgage.

Choosing the right mortgage program is even more important than finding the right house. Victory Capital has a huge nationwide network of lenders, not only will we get you the best possible interest rate, we will show you pros and cons to at least 6 different options for you. Each mortgage loan is as different as each client, so we take every customer and educate them on loans that they know and a few they don't. Some different mortgages are listed below with a brief description of each loan type.

Fixed Rate Mortgage

With a fixed rate mortgage, you know exactly what your principal and interest payment will be each month for the life of your loan. It won’t change because your interest rate doesn’t change. Your taxes and insurance component of your payment toward escrow can change (and probably will) if your taxes and insurance change. Unfortunately, there’s no way to lock those in. If interest rates go up, you’re protected with a fixed rate mortgage. But, you won’t benefit if rates go down. You can always take advantage of falling rates by refinancing.

Fixed rate mortgages might be right for you if:

Want the security of a fixed principal and interest payment.
Think that interest rates will go up.
Are on a fixed or limited budget.
Inflation protection.
If interest rates increase, your mortgage and your mortgage payment won't be significantly affected. Even if your taxes or insurance costs go up over time, your basic loan payment (principal and interest) will stay the same. This is especially helpful if you plan to own your home for five or more years.
Long-term planning.
You know what your monthly housing expense will be for the entire term of your mortgage. This can help you plan for other expenses and set long-term financial goals for yourself and your family.
Low risk.
You always know what your payment will be, regardless of what current interest rates are. This is why fixed-rate mortgages are so popular with first-time buyers.

There are additional considerations to be aware of with fixed-rate mortgages:

Your mortgage interest rate won't go down, even if interest rates drop, unless you refinance your mortgage.
Because the interest rate is generally higher than other types of mortgage loans, you may not be able to qualify for as large a loan with a fixed-rate mortgage.
Your total monthly payment can occasionally increase based on changes to your taxes and insurance. In many cases you pay these costs through an escrow account that your lender keeps for you.

Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARMs) are popular because they usually start with a lower interest rate and a lower monthly payment. The lower rate (and lower monthly payments) may also allow a higher loan amount. However, the interest rate can change during the life of the loan, which would mean that your monthly payment would increase (or decrease).

It's important to understand the specifics of an adjustable-rate mortgage, commonly called an ARM:

Adjustment periods.
All ARMs have adjustment periods that determine when and how often the interest rate can change. There is an initial fixed-rate period during which the interest rate doesn't change - this period can range from as little as 1 month to as long as 10 years. After the initial period, the interest rate will often adjust each year. For example, with a 3/1 ARM, your interest remains the same during the first 3 years, and then can adjust every year following, up to a maximum amount (the "lifetime cap").
Indexes and margins.
At the end of the initial period and at every adjustment period, the interest can change based on two factors: the "index" and the margin. Interest rate adjustments are based on a published index. There are many indexes but some commonly used for ARMs are the LIBOR and the U.S. Treasury Bill. The rates for indexes reflect current financial market conditions, which is why your interest rates can change at each adjustment period. The margin is the amount (shown as a percentage) that is added to the index to determine what your new mortgage rate will be until the next adjustment period.
Caps, ceilings, and floors.
All ARMs have rate caps, also known as ceilings and floors. Caps decide how much the interest rate can increase or decrease at each adjustment period and over the life of the loan. Most ARMs have a lifetime cap that limits the amount your interest rate can increase over the life of your mortgage.
The number system.
There are several types of ARMs, such as the 10/1, 7/1, 5/1 and 3/1. The first number (10 for example) is the length of the initial period, during which the interest rate can't change. The second number (1 for example) is how often the ARM is adjusted after the initial period. So, a 10/1 ARM won't change for the first 10 years, but can change in the 11th year and again every year after that. Depending on the initial cap the change could be as high as 5 percentage points above what it was before.

There are additional considerations to be aware of with adjustable-rate mortgages:

Because the initial interest rate is usually lower than a fixed-rate mortgage, your initial payments will be lower and you may qualify for a larger mortgage amount.
If interest rates are high when you get your mortgage but drop during any adjustment period, your monthly payment may decrease.
An ARM with a low initial interest rate and an initial adjustment period after 5 or 7 years can save you money.
ARMs can, and often do, have interest rate increases at adjustment periods. You may have an increase in your monthly mortgage payment after each adjustment period. The amount your mortgage might increase would depend on the periodic cap (how much of an increase is allowed each year), the lifetime cap (the maximum interest rate or maximum number of increases allowed), and the size of your mortgage's margin. If the life cap is 5%, the maximum interest rate adjustment would be to 10.75%

Jumbo Mortgages

Jumbo Mortgages or nonconforming loans exceed the loan limits set by the two publicly chartered corporations (Fannie Mae and Freddie Mac) that buy mortgage loans from lenders. The 2006 single family loan limit is $417,000. If you need to borrow more than that amount, you need a jumbo mortgage. These jumbo mortgages typically have a higher interest rate than conforming mortgages.

FHA

The Federal Housing Administration (FHA) provides a loan guarantee program instead of the standard private mortgage insurance (PMI) so qualified borrowers can get a mortgage loan with a down payment as low as 3%. The FHA doesn’t make the loan but rather they guarantee the loan minimizing the lender’s financial risk. FHA loans usually offer fairly liberal qualifying criteria compared to Fannie Mae and Freddie Mac and involve small down payments. The offer both fixed and adjustable loans.

Construction

Construction loans are used to finance the building of a new home rather than purchase an existing home. They are usually variable-rate loans that have interest only payments during the construction phase. Draws are scheduled based on the stages of construction to pay the builders. Many construction loans are construction-to-permanent which means that when construction is complete, the loan is converted to a normal mortgage. This has the advantage of a single loan with one closing.

Balloon/Reset Mortgages

Balloon/reset mortgages have monthly mortgage payments based on a 30-year amortization schedule, and you have a choice at the end of the 5- or 7-year term to either pay off the remaining balance or reset the mortgage. So you have the advantage of a low monthly payment, like someone with a 30-year loan, but you must pay off the loan at the end of the specified term.

Many balloon mortgages have a "reset" option. That means you can reset the interest rate of your mortgage to the current market rate for the remainder of the amortization period. This option is typically only available if:

You're still the owner and occupant of the home.
You've paid your mortgage on time for at least a year prior to the balloon note maturity date.
You have no other liens against the property.
If you do not qualify for a reset, you may qualify to refinance your balloon/reset mortgage.

There are additional considerations to be aware of with balloon/reset mortgages:

If you plan to sell your home before the balloon maturity date of the balloon/reset mortgage, this type of mortgage, like an ARM, may be a good option.
Balloon/reset mortgages usually come with a slightly lower initial rate than most other fixed-rate mortgage types. You may qualify for a larger loan amount with a balloon/reset mortgage than you would with a fixed-rate mortgage.

Unlike ARMs, whose interest rates may reset or adjust a number of times over the loan's life, a balloon mortgage comes with only adjustment. However, if interest rates rise sharply during the term of the balloon loan, you could face a large increase in your monthly payments when you reset or refinance your mortgage.
If your financial condition has changed at the end of the balloon term because of a decline in income, family medical problem, etc., you may have difficulty refinancing into an acceptable new mortgage.

What the numbers mean. There are 2 types of balloon/reset mortgages: 7/23 and 5/25. The two numbers together are the total number of years (30) the payments will be based on. The 1st number (7 or 5) is the number of years before the balloon maturity date. The 2nd number (23 or 25) is the balance of the term.