Fixed Rate Mortgage
The interest rate stays the same throughout the term of the loan – usually 15 or 30 years – so the principal interest portion of your payment remains the same. Payments are stable but initial rates tend to be higher than adjustable rate loans and often cannot be assumed by a subsequent buyer.
This is a mortgage type, which must be paid off after a certain period. The advantage they offer is an interest rate that is lower than a mortgage that is made for 30 years.
Adjustable-Rate Mortgage (ARM)
The interest rate is linked to a financial index, such as a Treasury security or a cost of funds – so your monthly payments can vary up or down over the life of the loan – usually 25 to 30 years. Interest rates can change monthly, annually, or every 3 or 5 years. Some ARMs have a cap on the interest rate increase, to protect the borrower.
Other terms relating to adjustable-rate mortgages
Adjustment period: The length of time between interest rate changes. Example: one year ARM-interest changes annually. Cap: The limit on how much an interest rate or monthly payment can change at each adjustment or over the life of the loan. Conversion clause: A provision in some loans that enables you to change an ARM to a fixed rate loan, usually after the first adjustment period. This may require additional fees. Index: A measure of interest rate changes used to determine changes in the loan’s interest rate over the term of the loan. Margin: The number of percentage points a lender adds to the index rate to calculate the ARM’s interest rate at each adjustment.
The VA does not lend money; it guarantees a portion of the loan so that lenders who originate the loan feel comfortable with their risk. Qualified veterans can obtain loans up to $417,000 with no down payment. VA-guaranteed loans can be combined with second mortgages and are assumable upon qualifying by any future buyer. To find out more information or to see if you may qualify for a VA Mortgage, visit our VA Loan Page.
FHA does not lend money or make a loan; rather, it insures loans. The down payment can be as low as 3.5%. Either buyer or seller may pay discount points. FHA charges an up front Mortgage Insurance Premium that can be financed in the mortgage amount or paid in cash. The borrower must also pay an annual Mortgage Insurance Premium or, which is collected monthly over the life of the mortgage. To find out more information or to see if you may qualify for an FHA Mortgage, visit our FHA Loan Page.
Also known as Rural Development Loans these loans are backed by an agency within the US Department of Agriculture (USDA). Eligible properties can often be purchased by qualified buyers without a down payment. Very similar to FHA loans, the USDA offers loan guarantees to lenders that loan money on properties in designated areas deemed eligible for RD loans. To find out more information or to see if you may qualify for a Rural Development Mortgage, visit our Rural Development Loan Page.
Seller Assisted Second Mortgage
The seller of the house lends the buyer enough to make up the difference between the purchase price and the down payment plus first-mortgage balance (some lenders also offer this kind of loan). The terms including the interest rate are based on buyer/seller agreement. It is often a short-term (5 to 15 year) loan; sometimes “interest only” payments until the term date when the balance is due in full. A buyer can then refinance the home.
Buyer “takes over” or assumes the mortgage obligation of the seller (with concurrence of the lender). The interest rate doesn’t change and is sometimes lower than current rates. Often the loan fees are less as well.