Combination Loans

At White Peak Mortgage we also have the capability of combining fixed rate and adjustable rate mortgage loans to create the best combination for our clients. Following are some of the variations available.

With fixed-period ARMs homeowners can enjoy from three to ten years of fixed payments before the initial interest rate change. At the end of the fixed period, the interest rate will adjust annually. Fixed-period ARMs -- 3/1, 5/1, 7/1 and 10/1 -- are generally tied to the one-year Treasury securities index. ARMs with an initial fixed period beside of lifetime and adjustment caps usually also have a first adjustment cap, which limits the interest rate you will pay the first time your rate is adjusted. First adjustment caps vary with the type of NH loan program.

• Strengths: The interest rate is lower than for a 30-year fixed (the lender is not locked in for as long so their risk is lower and they can charge less) but you still get the advantage of a fixed rate for a period of time.
• Weaknesses: These programs may not offer enough security for cautious borrowers, or may not be beneficial when rates are on the rise.
• Comments: Descriptions of each fixed-period ARM are included in the Adjustable Rate Mortgages section above.

Two-Step mortgages have a fixed rate for a certain time, most often 5 or 7 years, and then the interest rate changes to a current market rate. After that adjustment the mortgage maintains a new fixed rate for the remaining 23 or 25 years.

• Strengths: This program offers a lower fixed interest rate for the first 5 or 7 years than is available for a conventional 30 year fixed rate program, while giving the security of a fixed rate program making it less risky than an adjustable rate program.
• Weaknesses: If the rates increase after the initial 5 or 7 year period, the rate increase could be fairly dramatic.
• Comments: This program is best for someone who wants the security of a fixed rate and plans to own their home for fewer than 7 years.

Some ARMs come with the option to convert them to a fixed-rate mortgage at designated times (usually during the first five years on the adjustment date), if you see interest rates starting to rise. The new rate is established at the current market rate for fixed-rate mortgages.

• Strengths: This program provides some security for the ARM if rates start to rise. The conversion is typically done for a nominal fee and requires almost no paperwork.
• Weaknesses: The conversion interest rate is typically a little higher than the market rate at that time.
• Comments: This may be the right program for someone who wants an adjustable rate mortgage for the life of the NH loan, but with a safety net.

Graduated payment mortgages have payments that start low and gradually increase at predetermined times.

• Strengths: A lower initial payment allows you to qualify for a larger loan amount.
• Weaknesses: The monthly payments will eventually be higher in order to catch up from the lower payments. In fact, your loan will be negatively amortizing during the early years of the loan, then you pay off the principal at an accelerated pace through the later years.
• Comments: Lenders offer different GPM payment plans, which vary in the rate of payment increases and the number of years over which the payments will increase. The greater the rate of increase or the longer the period of increases, the lower the mortgage payments in the early years.

A temporary buydown is the type of loan with an initially discounted interest rate, which gradually increases to an agreed-upon fixed rate usually within one to three years.

• Strengths: A lower initial payment allows you to qualify for a larger loan amount.
• Weaknesses: To reduce your monthly payments during the first few years of a mortgage you make an initial lump sum payment to the lender.
• Comments: If you do not have the cash to pay for the buydown, the lender can pay this fee if you agree on a little higher interest rate. A very popular buydown is the 2-1 buydown. 3-2-1 and 1-0 buydowns are also available, though less common. Compressed Buydown, works the same way, but with the interest rate changing every six months instead of on an annual basis. The lower rate may apply for the full duration of the NH loan or for just the first few years.