Guide to Speciality Mortgages
Adjustable Rate Mortgages, Piggyback/Combo, Buydowns and More
Searching for a mortgage in the UK? You could find one of these hybrid and specialty loans that could be more suited to your needs than the more common Fixed-Rate, FHA, VA or Interest-Only loans.
Hybrid Mortgage Loans
Option ARM Mortgages
Option ARM loans are a quite complicated way to borrow. They are adjustable-rate mortgages where the interest rate can fluctuate periodically. If you choose an ARM mortgage you have a number of payment options and index rates open to you. Borrowers should be wary of the minimum payment option as this can result in negative amortization.
Piggyback or Combo Loans
This way of mortgage financing is made up of two loans, essentially a first mortgage and a second mortgage. Both of these mortgages can be adjustable-rate mortgages or fixed-rate or a mix of the two. To avoid paying private mortgage insurance, you can take out two loans when the downpayment is under 20%.
Adjustable Rate Mortgage (ARM)
Adjustable-rate mortgages (ARMs) are available with a number of different options. The interest rate fluctuates periodically, moving up or down monthly, semi-annually, annually or remaining fixed for a period of time.
Mortgage Buydowns
Borrowers who would like to pay a lower interest rate at first often choose mortgage buydowns. The interest rate is lower because fees are paid to lower the rate. Lenders, sellers or buyers can ‘buy down’ the interest rate for the borrower.
Specialty Mortgage Loans
Streamlined-K Mortgage
FHA has a program that provides funds to a borrower to renovate or fix up a home by placing the funds all into just one loan. The cash limits for repair work are less on a Streamlined-K loan, but it does require significantly less paperwork and is more easily obtained than a 203K loan.
Bridge or Swing Loans
These types of mortgage loans are used when a seller has put a home they have not yet sold on the market and would like to borrow equity to purchase another home. The seller's currently unsold home is used as security for this type of loan.
Equity Mortgage Loan
Equity loans are junior and second to the already existing first mortgage. Borrowers take out equity loans for cash. This type of loan can be fixed, adjustable or a line of credit.
Reverse Mortgages
If you have sufficient equity, and are over the age of 62, a reverse mortgage is an option for you. The interest rate for this type of loan can be fixed or adjustable and the lender makes monthly payments to the borrower for as long as they reside in the home.
