What types of mortgages are available?
Traditional Fixed Rate Mortgages With a fixed rate mortgage, the interest rate is set for the full term of the loan. The monthly payment for principal and interest stays the same for the life of the loan. Adjustable Rate Mortgages An adjustable rate mortgage usually starts with a lower initial interest rate than traditional fixed rate loans. After an initial fixed payment period (usually 3, 7 or 10 years), the interest rate is subject to review and can move up or down based on the index and margin. Your monthly payment changes as the interest rate changes. Balloon Mortgages A balloon mortgage starts out the same as a 30-year fixed rate mortgages, but after the initial term, the balance of the loan must be repaid. The loan may be refinanced or simply paid off at the end of the initial term.
When it comes to mortgages, there are almost as many choices as there are styles of homes. Conventional Loans are the most common type of mortgage. These loans are insured by private insurance companies rather than government agencies. With this type of loan, borrowers have the choice of fixed or adjustable rate terms. Learn more about mortgage options.
Fixed-rate mortgage – You pay the same interest rate and same monthly payment of principal and interest for the duration of the mortgage. The most common terms are 30 years and 15 years. Fixed-rate mortgages are best if you plan on being in your home forever. Adjustable-rate mortgage (ARM) – The interest rate stays fixed for an initial interest rate period, which ranges from 1 to 7 years. Then the rate will adjust up or down over the life of the loan based on a specified index. An ARM is a good option if you believe interest rates will go down over the next few years or if you plan on staying in your home seven years or less. Combination loan – A loan where you receive a first mortgage combined with a second mortgage. This option may help you avoid the costs of private mortgage insurance (PMI) and/or the higher rate of a jumbo loan with as little as 5% down. The most popular combinations are 80-15-5 (80% first, 15% second, 5%down), or 80-20 (80% first, 20% second, 0% down).
