Temporary Jumbo Mortgage or Blended Rate Mortgage? (loan officer, interest rate, heloc)

[njhousehunter]

Hi,
I am buying my first home and trying to figure out how to get the best mortgage rate. I am reading all I can about it, but still find it very confusing and would appreciate any advise you may have.

I will be borrowing more than 417,000 (600,000 at most), putting 20% down and my middle credit score is 690. (792 & 678 are the others). I have no debt, and income is sufficient. I was preapproved yesterday with these options:

OPTION 1.) 6.75% interest with 0 points
The LO called this a hybrid loan...(Higher interest rate than a conventional loan, but lower than a jumbo due to the temporary loan limits that are part of the economic stimulus plan.)

OPTION 2.) 6.25% interest with 1.125 points
Also the hybrid loan...

ANd here's where I am getting confused:

OPTION 3.) A Blended Rate loan.
5.75% interest, 0 Points for one loan up to $417,000, and
5.625% interest on the amount over 417,000. (It seemed like this portion of the loan was tied to the Prime Rate and could fluctuate. The LO also referred to this as an equity line of credit and said something about it being interest only. )

So, my question is, what could be the catch with option 3? Aside from the fact that the rate could fluctuate? I could probably pay this 2nd part of the loan off within a few years, if that helps.

Thanks in advance for your help!

[renriq02]

You can have two loans....one at 417k and the 2nd on whatever is left.
No catch there....


For the first two options...what products are you looking at?
Is it a 30yr fixed? 5/1 ARM?

Originally Posted by njhousehunter

Hi,
I am buying my first home and trying to figure out how to get the best mortgage rate. I am reading all I can about it, but still find it very confusing and would appreciate any advise you may have.

I will be borrowing more than 417,000 (600,000 at most), putting 20% down and my middle credit score is 690. (792 & 678 are the others). I have no debt, and income is sufficient. I was preapproved yesterday with these options:

OPTION 1.) 6.75% interest with 0 points
The LO called this a hybrid loan...(Higher interest rate than a conventional loan, but lower than a jumbo due to the temporary loan limits that are part of the economic stimulus plan.)

OPTION 2.) 6.25% interest with 1.125 points
Also the hybrid loan...

ANd here's where I am getting confused:

OPTION 3.) A Blended Rate loan.
5.75% interest, 0 Points for one loan up to $417,000, and
5.625% interest on the amount over 417,000. (It seemed like this portion of the loan was tied to the Prime Rate and could fluctuate. The LO also referred to this as an equity line of credit and said something about it being interest only. )

So, my question is, what could be the catch with option 3? Aside from the fact that the rate could fluctuate? I could probably pay this 2nd part of the loan off within a few years, if that helps.

Thanks in advance for your help!

[njhousehunter]

Ok, good to hear there is no catch! I was suspicious because I couldn't figure out why the LO would present these different options when the first 2 seemed like a worse deal than option 3. (Plus, option 3 was only presented after I asked if there was a way to break the loan up to avoid the jumbo rate.) The first 2 are 30yr fixed loans.
Thank you so much for your reply.

[TwiloMike]

The catch on option 3 is that on the line of credit you will pay interest only and make no dent in principal unless you pay extra. You are also likely to have pre-payment penalties with a line of credit. For what term will you have the line of credit? It will come due... in full, likely before the rest of your mortgage.

[njhousehunter]

The term is 20 years, and, from what I understand, there is a $500 fee if I pay in full before the 20 years are over. I was told that I could pay off practically the whole balance, but leave a small amount unpaid, just to keep the loan open and avoid the fee.

Thanks for your earlier reply.

[renriq02]

that sounds about right for most helocs

Originally Posted by njhousehunter

The term is 20 years, and, from what I understand, there is a $500 fee if I pay in full before the 20 years are over. I was told that I could pay off practically the whole balance, but leave a small amount unpaid, just to keep the loan open and avoid the fee.

Thanks for your earlier reply.

[vgopalas]

Have you made a decision on which option is best for you? I'm exactly in the same boat as you are and I've to make a decision in the next 10 days.

Thank you

[renriq02]

rates are going up so make sure you make it sooner than 10days!

[ajpacino]

Have you checked into a JUMBO FHA, I work on jumbo loans and every county has different loan limits, FHA will let you go to 97% of the value of the home wich leaves you with about 6% to put down 3% down, and about 3% total cost, title, taxes, ins, ect. here are todays jumbo %

Now Accepting New Loan Limits on FHA & FNMA!

FHA Jumbo 30 Year FIXED

6.375% @ (.181)

6.625% @ (.980)

6.750% @ (1.354)

[ajpacino]

and yes the #'s with ( ) is how much the bank pays your loan officer to give you that rate 6,375 pays me .181 of the loan amout, but if I give you a 6.75% I get paid 1.354% of the loan amount, just spreading the knowledge and if you have any other questions please pm me