Choose Your Loan Program
Fixed Rate Mortgages
In our current economy, with great interest rates, most people are getting fixed rate mortgages. We have loans that are fixed for 10, 15, 20, 30, and even 40 years, although the 30-year fixed rate loans are still the most popular of fixed rate mortgages.
Fixed rate loans are loans where the monthly payments are fixed over the life of the loan, at a pre-determined fixed interest rate. Fixed rate loans are great protection from rising interest rates, and are a smart choice if you are planning on keeping your property over 10 years. Fixed rate loans combine interest and principal payments. In the early years of a fixed rate loan, you are paying mostly interest; as you get to the end of the loan you are paying mostly principal. I can give you an amortization table that will show you exactly how much interest and principal you are paying each month.
One strategy to pay off your loan early is to pay more than your monthly payment, thus paying off more of the principal, and/or making an extra payment each year.
Fixed rate loans offer you security of a fixed rate and payment, and the option to refinance if rates improve.
Adjustable Rate Mortgages
Statistics show that many people move to a new home or refinance their home every 5 years or so. When this is the case, why do you need the (generally) higher interest rates of a fixed rate mortgage? A key question to ask yourself when shopping for a home loan is: "How long do I plan on owning the property?" The answer will help you decide what kind of loan program best suits your needs.
Adjustable Rate Mortgages (ARMs) typically offer lower interest rates and payments, and may be good for people who are not planning on keeping their property long term. Adjustable rate mortgages are loans where the interest rate changes periodically, based on an index.
Intermediate ARMs
"Intermediate ARMs" (also called "Hybrid ARMs") are loans where the interest rate is fixed for 3, 5, 7, or 10 years, after which the interest rate adjusts based on the current index. Intermediate ARMs can offer you the best of both worlds - lower interest rates plus rates that are fixed for a pre-determined period of time. For example, a "5/1 ARM" is a loan that offers a fixed rate for five years, an adjustment at the beginning of year 6, and then changes annually thereafter (the "1"). You may also see intermediate ARMs where the second number is a "6" (for example, a 5/6 ARM, which means the rate can change every 6 months after the initial fixed period.)
Most ARMs are fully amortized (including principal and interest). A few lenders still offer interest-only loans.