Residential Mortgage Loans. The largest segment of our loan portfolio is residential
mortgage loans, which enable borrowers to purchase or refinance existing homes,
most of which serve as the primary residence of the owner.
We offer fixed-rate and adjustable-rate residential mortgage loans with terms
up to 30 years. Generally, our fixed-rate loans conform to Fannie Mae and Freddie
Mac underwriting guidelines and are originated with the intention to sell. Our
adjustable-rate mortgage loans generally adjust every three years after an initial
fixed period that ranges from three to ten years. Interest rates and payments
on our adjustable-rate loans generally are adjusted to a rate equal to a specified
percentage above a representative U.S. Treasury index.
Commercial Real Estate Loans. We also offer fixed-rate and adjustable-rate
mortgage loans secured by commercial real estate properties, including loans
secured by multi-family real estate properties. Our commercial real estate and
multi-family loans are generally secured by properties used for business purposes
such as office buildings, warehouses, retail facilities and apartment buildings.
In addition to originating these loans, we also occasionally participate in
commercial real estate loans with other financial institutions located primarily
in Massachusetts.
Home Equity Lines of Credit. We offer home equity lines of credit, which are
generally secured by owner-occupied residences. Home equity lines of credit
have adjustable rates of interest with ten-year draws amortized over 15 years
that are indexed to the Prime Rate as published by The Wall Street Journal and
generally are subject to an interest rate floor. Our home equity lines of credit
generally have a monthly variable interest rate. We offer home equity lines
of credit with cumulative loan-to-value ratios generally up to 85%, when taking
into account both the balance of the home equity loans and first mortgage loan.
We typically do not hold a first mortgage position on the homes that secure
home equity lines of credit.
Construction Loans. We primarily originate construction loans to contractors
and builders, and to a lesser extent, individuals, to finance the construction
of residential dwellings. We also make construction loans for commercial development
projects, including small industrial buildings and retail and office buildings.
Our construction loans generally are fixed-rate, interest-only loans that provide
for the payment of interest only during the construction phase, which usually
ranges from 12 to 24 months. The interest rates on our construction loans generally
give consideration to the prime rate as published in the Wall Street Journal
and market conditions. Construction loans generally are made with a loan to
value ratio up to of 75% of the appraised market value estimated upon completion
of the project, but may be made up to a maximum loan to value ratio of 80%.
As appropriate to the underwriting and appraisal process for certain property
classes, a “discounted cash flow analysis” may be utilized. Before
making a commitment to fund a construction loan, we require an appraisal of
the property by an independent licensed appraiser. We also will require an inspection
of the property before disbursement of funds during the term of the construction
loan. Generally, our construction loans do not provide for interest payments
to be funded by interest reserves.
Commercial Business Loans. We make commercial business loans primarily in our
market area to a variety of professionals, sole proprietorships and small businesses.
Commercial lending products include term loans, revolving lines of credit and
equipment loans. Commercial business loans and lines of credit are made with
either variable or fixed rates of interest. Variable rates generally are based
on the prime rate as published in The Wall Street Journal, plus a margin. Fixed-rate
business loans are generally priced by considering the prime rate and the comparable
cost of funding, typically from published rates of the Federal Home Loan Bank
of Boston. Commercial business loans typically have shorter maturity terms and
higher interest spreads than real estate loans, but generally involve more credit
risk because of the type and nature of the collateral. We focus our efforts
on small- to medium-sized, privately-held companies with local or regional businesses
that operate in our market area. In addition, commercial business loans are
generally made to existing customers having a business or individual deposit
account, or new borrowers who are required to establish appropriate deposit
relationships with Wellesley Bank, if not already a depositor.