Fixed Rate Loans
Fixed rate loans typically come in 10, 15, 20, 25, 30, and 40 year terms. These loans are more traditional and have a fixed rate and monthly principal and interest payments over the life of the loan. What do my results mean? What are the next steps?
When might a Fixed Rate Mortgage be right for me?
- You think you will stay in your home for more than 10 years.
- You do not plan on refinancing within a 10 year period.
- Fixed, stable payments over the life of the loan are important to you.
- Minimizing your initial monthly payments is less important to you.
What else should I consider with a Fixed Rate Mortgage?
- You should consider paying "discount points" to reduce your interest rate.
- 10-20 year Fixed Rate Mortgages are good for borrowers who want to build equity in their homes faster, and don't mind making higher monthly payments.
Adjustable Rate Mortgages (ARMs)
ARMS usually come in 6 month, 1, 2, 3, 5, 7, and 10 year increments. For the initial period of these loans, the rate and monthly payments are fixed. These will adjust after the initial fixed period ends according to a specific index or rate.
When might an ARM be right for me?
- You will likely stay in your home less than 10 years.
- You want to lower your initial rate and monthly payments.
- Should you stay in your home longer than the initial term, you are comfortable refinancing.
What else should I consider with an ARM?
- You should consider a No-Closing Cost Option to minimize the costs you will pay upfront.
- The shorter the initial period the lower your rate will typically be. For example, the initial rate on a 3 year ARM is usually lower than the rate on a 7 year ARM.
- The lower payments with an ARM may help you qualify for a larger loan amount.
Interest-Only mortgages
For most ARMs and 30 year Fixed Mortgages, you will have the option to make Interest-Only payments. Your monthly payments will not include principal, meaning your payments will not reduce the total balance on your loan. Rates on Interest-Only loans can be slightly higher, but the monthly payments are lower than Fully Amortizing loans.
When might an Interest-Only Mortgage be right for me?
- Minimizing your monthly payments is very important to you.
- It is not as important to build equity in your home through your mortgage payments.
What else should I consider with an Interest-Only Mortgage?
- The lower payments with an Interest-Only Mortgage may help you qualify for a larger loan amount.
Option ARMs
Also known as a "pick a pay," this type of loan gives you three payment options each month:
- A minimum payment established when your loan closes.
- An Interest-Only payment based on a preset index and margin.
- A Fully Amortized payment based on the same index and margin.
Option Arms can be a very valuable tool if used properly. However, one must always be aware that negative amortization can occur when you only make the minimum required payment.
