Thirty-Year Fixed Rate Mortgage
The traditional 30-year fixed-rate
mortgage has a constant interest rate and monthly payments that
never change. This may be a good choice if you plan to stay in
your home for seven years or longer. If you plan to move within
seven years, then adjustable-rate loans are usually cheaper.
As a rule of thumb, it may be harder to qualify for fixed-rate
loans than for adjustable rate loans. When interest rates are
low, fixed-rate loans are generally not that much more expensive
than adjustable-rate mortgages and may be a better deal in the
long run, because you can lock in the rate for the life of your
loan.
Fifteen-Year
Fixed Rate Mortgage
This loan is fully amortized over a 15-year period and features
constant monthly payments. It offers all the advantages of the
30-year loan, plus a lower interest rate—and you'll own
your home twice as fast. The disadvantage is that, with a 15-year
loan, you commit to a higher monthly payment. Many borrowers
opt for a 30-year fixed-rate loan and voluntarily make larger
payments that will pay off their loan in 15 years. This approach
is often safer than committing to a higher monthly payment, since
the difference in interest rates isn't that great.
Hybrid
ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
These increasingly popular ARMS—also called 3/1, 5/1 or
7/1—can offer the best of both worlds: lower interest rates
(like ARMs) and a fixed payment for a longer period of time than
most adjustable rate loans. For example, a "5/1 loan" has
a fixed monthly payment and interest for the first five years
and then turns into a traditional adjustable-rate loan, based
on then-current rates for the remaining 25 years. It's a good
choice for people who expect to move (or refinance) before or
shortly after the adjustment occurs.
Adjustable Rate Mortgages (ARM)
When it comes to ARMs there's a basic rule to remember...the
longer you ask the lender to charge you a specific rate, the
more expensive the loan.
2/1
Buy Down Mortgage
The 2/1 Buy-Down Mortgage allows the borrower to qualify at below
market rates so they can borrow more. The initial starting interest
rate increases by 1% at the end of the first year and adjusts
again by another 1% at the end of the second year. It then remains
at a fixed interest rate for the remainder of the loan term.
Borrowers often refinance at the end of the second year to obtain
the best long-term rates. However, keeping the loan in place
even for three full years or more will keep their average interest
rate in line with the original market conditions.
Annual
ARM
This loan has a rate that is recalculated once a year.
Monthly
ARM
With this loan, the interest rate is recalculated every month.
Compared to other options, the rate is usually lower on this
ARM because the lender is only committing to a rate for a month
at a time, so his vulnerability is significantly reduced.
Negative
Amortization (Neg. Am) Loan (*Specific borrowers only)
This is a deferred-interest loan which is very powerful -- and
the most misunderstood mortgage program because of its many options.
Basically, the lender allows the borrower to make monthly payments
that are less than the accruing interest. Therefore, if the borrower
chooses to make the minimum monthly payment, the loan balance
will increase by the amount of interest not paid on the loan.
The power of this loan lies in the borrower's ability to choose
between making the full loan payment, or the minimum payment,
or any amount in between. If a borrower's income varies throughout
the year (due to commissions, bonuses, etc.), the borrower can
make a lower payment during the "lean times", and then
make higher payments when funds are readily available.