CHOOSING YOUR MORTGAGE
Whether you’re looking to buy your first home or refinancing your current one, here’s a handy explanation of which mortgage may work best for you.
FIXED RATE MORTGAGES
You’re probably aware of the fixed-rate mortgage. No doubt your parents had one and their parents before them. The major advantage of a fixed-rate mortgage is that it presents predictable housing costs for the life of the loan.
We offer the following fixed rate mortgage loans:
- Conventional ~ FHA ~ VA ~ FIXED-rates – 10-15-20 and 30 year terms
We also offer:
- Attractive adjustable rate loans
- Construction loans
- Renovation loans
- First time buyer loans with as little as 3% down
ADJUSTABLE RATE MORTGAGES
The adjustable rate mortgage (ARM) came about during a time of high interest rates that kept many people out of the housing market. The ARM offered lower “initial rates” by sharing the future risk of higher rates between Borrower and Lender. All ARM loans have initial and lifetime interest rate caps.
We offer the following adjustable rate mortgage loans:
- 1 year
- 3 year
- 5 year
- 7 year
You can choose the amortization period of 10-15-20 or 30 years
ARMs can be an excellent choice of financing under certain conditions, such as rising income expectations, high interest rates and short-term ownership. But because payments and interest rates can increase, either steadily or irregularly, homebuyers considering this kind of mortgage need to have the income to keep up with all possible rate and/or payment changes.
EACH ARM HAS 5 COMPONENTS
- INITIAL INTEREST RATE – usually one to three percentage points lower than that of most fixed-rate mortgages. Lower initial interest rates also make ARMs easier to qualify for. The initial interest rate is tied to certain economic indicators that dictate in part what the monthly payment will be.
- INDEX – against which Lenders measure the difference between what they are making on their investment in the mortgage and what they could be making on other types of investments. The most popular index is based on the rate of return on a one-year Treasury bill (T-bill).
- ADJUSTABLE INTERVAL – the time between changes in the interest rate and/or monthly payment; typically one, three or five years.
- MARGIN – the additional amount the Lender adds to the index to establish the adjusted interest on an ARM. The typical margins rank between 2.5% to 3%.
- CAPS – the maximum amount the interest rate can change either per adjustment or over the life time of the loan. A typical cap on a one year ARM is 2% / 6%, meaning that the interest rate cannot go up more than 2% per year and that the maximum the rate can go up over the life of the loan is 6% over the initial start rate.
Some ARMs have fixed-rate conversion options. This option allows the Borrower to make their adjustable rate loan become a fixed-rate loan. There is usually a fee required for the conversion. The conversion rate may be higher than the prevailing ARM rate to compensate the Lender for the risk it takes in regard to market rates going up.
Lenders who offer ARMs must give a disclosure about its ARM program at the time of loan application.