- Introduction
- Acknowledgements
- 1: Getting Ready
- 2: The Costs of Space
- 3: Understanding Credit
- 4: Professional Services
- 5: Finding Space
- 6: Residential Leases
- 7: Commercial and Industrial Leases
- 8: Buying Real Estate
- 9: Types of Mortgages
- 10: The Mortgage Application
- 11: Ownership Models
- 12: Purchasing Alternatives
- 13: Chicago Zoning Ordinance
- 14: Chicago Building Code
- 15: Chicago's Neighborhoods
- 16: Property Taxes
- 17: When You Find a Property
- 18: Inspections
- 19: After Moving In
- 20: Insurance
- 21: Utilities
- 22: Rehabbing Your Space
- 23: Safe and Healthy Spaces
- 24: Green Practice
- 25: When Disputes Arise
- 26: Space Emergencies
- 27: Facility Development Planning
- Bibliography
9: Types of Mortgages
Once you are ready to secure a loan, you must decide what type of mortgage is right for you. Consider the following:
- Type of down payment you make;
- Amount of time to pay the loan back, also known as the loan term;
- How long you plan to stay in the space;
- Interest rate you want to pay; and
- Other factors specific to your situation.
Although you’ll be presented with a smorgasbord of choices, most mortgages fall into two primary categories:
- Fixed-Rate Mortgages: Locks in your interest rate for the loan's lifespan. Your monthly payment is allocated to both the principal and interest, and usually remains constant. At the beginning of the loan, most of your monthly payment will go towards the interest. With each payment, more and more funds go to the principal.
For residential properties, loans are readily available in 15 and 30-year terms. Loans for commercial spaces usually do not exceed 15-year terms; five- and 10-year terms are common.
- Adjustable-Rate Mortgages (ARM): The main difference between fixed-rate and ARMs involves paying interest on the loan. Interest rates for ARMs generally start lower than on fixed-rate loans, so borrowers may qualify for a higher mortgage amount.
Because interest rates on ARMs fluctuate throughout the life of the loan based on financial market indicators, your monthly mortgage payment will also increase and decrease on a regular cycle. ARM loans are also available in loan terms as short as 15 years or as long as 30 years.
There are two basic ways mortgage lenders charge you for using their money: through interest charges you pay each month over the life of the loan, and points.
Points are an upfront fee based on a percentage of the loan. One point represents 1% of the mortgage. For example, for a $150,000 mortgage, one point would be $1,500, or 1% of the mortgage; two points represents 2% of the mortgage, or $3,000; and so on.
Points can be paid as part of closing costs, or the lender will reduce the available loan proceeds by the amount of the points. Some loans will not charge points, but will have a higher interest rate. In Illinois, most residential mortgages do not charge points.
When reviewing different mortgage products, compare their interest rates, points amounts and other fees to get a clearer picture of how much you will pay. The remainder of this chapter will discuss available loans.
The following individuals and/or organizations contributed to the content of this chapter: Daniel P Lindsey, Esq., Legal Assistance Foundation of Chicago; Neighborhood Assistance Corporation of America; and Jill Stack, National City Mortgage Bank.