One of the most common non-conforming loan programs is the No Income Verification (NIV) loan. A non-conforming loan refers to any loans that are sold to the secondary mortgage market, but NOT through Fannie Mae, Freddie Mac or Ginnie Mae. Non-conforming loans are sold through more expensive private conduits because they do not satisfy or “conform” to the guidelines established by Fannie Mae, Freddie Mac and Ginnie Mae.
The NIV program allows the borrower to qualify for mortgage financing, regardless of their income.
Because of the lower initial monthly payments, there may be negative amortization during the first year(s) of the loan. Negative amortization occurs when the scheduled payment does not cover the entire interest rate charge. The unpaid interest is added to the principal balance, creating negative amortization.
GPM loans are rarely available today, because their benefits and advantages do not really offset their costs and disadvantages. Again, most home buyers will discover that they are better off with a Temporary Buy-Down program or a standard 30-year fixed-rate loan, rather than the GPM.
Initially introduced by the Federal Housing Administration (FHA), the graduated payment mortgage (GPM) has lost much of its popularity. However, related programs have been developed to better apply the GPM’s basic objective.
The GPM was designed for borrowers and home buyers who anticipated future increases in their income. This program allowed such applicants to qualify for a larger mortgage loan and, thus, a bigger home purchase.
The most common program with a similar objective today is the Temporary Buy-Down program, which lowers the interest rates during the first one-to-three years of the loan. The applicant would then be qualified and underwritten based on the lower interest rate and monthly payment of the first year.
However, unlike the Buy-Down program, the GPM loan lowered the monthly payment but not the interest rate. Instead the GPM adjusts the monthly payments so that the borrower pays slightly less during the first years but slightly more in later years.
A Biweekly payment plan, when available and affordable, is a highly recommended option that all homeowners should consider. This loan repayment strategy can save the borrower thousands of dollars, shorten the mortgage term and more quickly increase available equity.
The key element of the biweekly plan is that the borrower essentially pays an additional monthly payment every year. This additional payment is prepayment toward principal; it is not an advanced monthly (Principal & Interest) payment that was regularly scheduled.
With the biweekly plan, instead of one monthly payment, the borrower will pay half (1/2) of a monthly payment every two weeks. Of course, there are more than four weeks every month. Since there are 52 weeks in a year, the borrower ends up paying 13 months of payments each year—resulting in an additional full monthly payment every year:
● 1/2 of a regular monthly payment every 2 weeks.
● 52 weeks in a year.
● 26 biweekly payments (52 / 2) in a year.
● 26 biweekly payments equal 13 monthly payments (26/2 = 13).
This prepayment results in a marked decrease of the loan term, as demonstrated below. This prepayment also means that the borrower will pay much less in interest charges and will be increasing the equity in his or her home more quickly.