Loan Types

Fixed Rate Home Loan

Fixed-rate mortgages allow for repayment of a debt in equal monthly mortgage payments over a specified period of time, from 10 to 50 years. A 30-year amortization period is typically most common.

• Payments are credited first to interest, then to principal, so the beginning of your loan period the majority of the payment goes toward interest.
• Toward the end of the loan period, much of the monthly payment goes toward principal.

The Benefits of Fixed-Rate Loans

Some borrowers  prefer fixed-rate mortgages because they like the peace of mind in knowing exactly how much they will pay per month for principal and interest.

• The interest rate is fixed, so if overall interest rates increase, it does not affect the fixed-rate borrower.
• If interest rates increase, the borrower can refinance the mortgage into a lower rate.

Conventional Home Loans

A conventional loan encompasses a lender agreement that’s not backed in full by the Veterans Administration or protected by the Federal Housing Administration (FHA).   The major disadvantage of conventional loans are the larger down payments that are not typically found in government-backed loans.

The Benefits of Conventional Loans:

• Lenders may keep the loan in their portfolio to allow more flexibility in underwriting.
• The ability to either eliminate or negotiate certain types of loan fees.

Adjustable Rate Home Loans

An adjustable rate mortgage, sometimes referred as an ARM, is a mortgage loan where the interest rate on the note is adjusted based on a variety of indices.

The most important basic features of ARMs are:

1. Initial interest rate. This is the beginning interest rate on an ARM.

2. The adjustment period. This is the length of time that the interest rate or loan period on an ARM is scheduled to remain unchanged. The rate is reset at the end of this period, and the monthly loan payment is recalculated.

3. The index rate. Most lenders tie ARM interest rates changes to changes in an index rate. Lenders base ARM rates on a variety of indices, the most common being rates on one-, three-, or five-year Treasury securities. Another common index is the national or regional average cost of funds to savings and loan associations.

4. The margin. This is the percentage points that lenders add to the index rate to determine the ARM’s interest rate.

5. Interest rate caps. These are the limits on how much the interest rate or the monthly payment can be changed at the end of each adjustment period or over the life of the loan.

6. Initial discounts. These are interest rate concessions, often used as promotional aids, offered the first year or more of a loan. They reduce the interest rate below the prevailing rate (the index plus the margin).

7. Negative amortization. This means the mortgage balance is increasing. This occurs whenever the monthly mortgage payments are not large enough to pay all the interest due on the mortgage. This may be caused by the payment cap contained in the ARM when are high enough that the principal plus interest payment is greater than the payment cap.

8. Conversion. The agreement with the lender may have a clause that allows the buyer to convert the ARM to a fixed-rate mortgage at designated times.

9. Prepayment. Some agreements may require the buyer to pay special fees or penalties if the ARM is paid off early. Prepayment terms are sometimes negotiable.

Home Loan Types

Considering what type of mortgage to get is a difficult and daunting decision, especially for first time home buyers.  Here you can find details on many loan types to help inform your mortgage choices.

• Adjustable Rate
• Conventional
• FHA
• Fixed Rate
• Home Equity
• Interest-Only
• Refinance
• Reverse Mortgage
• VA

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