Loan Types

Types of Loans

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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. The majority of people prefer the traditional 30 year fixed mortgage. The payments never change and there are no prepayment penalties.

Fifteen-Year Fixed Rate Mortgage

This loan is fully amortized over a 15-year period and features fixed monthly payments. It offers similar advantages of the 30-year loan in that it is fixed and there are no prepayment penalties. However, a 15 year mortgage has a lower interest rate and saves you thousands in interest due to the shorter term. 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 significant.

Hybrid ARM (1/1 ARM 3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM)

These increasingly popular ARMS, also called 1/1, 3/1, 5/1, 7/1 or 10/1, can offer lower interest rates than fixed rate mortgages 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 sell, refinance, or simply need lower payments for a definitive period of time.

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. *An added benefit to a Buy Down Mortgage is that the seller can pay for the cost of the buydown.

FHA Mortgage (Federal Housing Administration)

Federally insured loans are ideal for first time home buyers or borrower’s who need more flexibility with down payment, credit, or income.

HARP (Home Affordable Refinance Program) Loans

If the value of your home has declined, looking into a HARP loan may be your best option. The HARP program was developed by the government to help you get a more affordable mortgage. If you have lost equity in your home and may even be underwater, this may be the program for you.