Fixed vs. AdjustableFirst, let’s talk about the basic difference between fixed- and adjustable-rate mortgages. A fixed-rate mortgage means that your interest rate does not change for the life of your loan. This gives you stability in knowing what your mortgage payment will be, in terms of the principal and interest portion of the loan, year after year. An adjustable-rate mortgage means that your rate may adjust throughout the life of your loan. Usually, the initial rate stays the same for a certain amount of time, but then it starts adjusting on a regular basis. We’ll go more in depth about each of these as we continue, but that’s a basic overview.
Fixed-Rate MortgagesTraditionally, you hear about a 30-year, fixed-rate mortgage. If you’ll be staying in your home for a long time period, this is typically a good choice. When rates are low, it’s a great time to lock in that low rate for 30 years!
If you can handle more of a monthly payment, you may want to consider a 15-year, fixed-rate mortgage. You’ll pay off your mortgage faster and benefit from a lower rate.
Adjustable-Rate MortgagesAlso known as ARMs, you will see these referred to as a 3/1, 5/1 or 7/1 ARM. The first number indicates how many years the initial interest rate will stay fixed. The second number tells you how frequently your interest rate may adjust after that fixed time period ends. For instance, a 5/1 ARM will have a set interest rate for the first five years and then has the option to adjust based on market conditions every year after that. Your loan terms will include a cap as to how much of an adjustment the rate can have each time.
FHA, VA and Conventional MortgagesThese are the three most common mortgages, but there are other specialty mortgage programs as well. FHA loans are insured by the Federal Housing Administration, and VA loans are insured by the Veterans Administration. Both of these loan types are often referred to as government loans. With FHA, you may have the opportunity to have home financing with a down payment of 3.5% of the sale price; and with VA, there’s the option of 100% financing.
Conventional loans follow guidelines from Fannie Mae and Freddie Mac and are not government insured. As a result, lenders require private mortgage insurance if your down payment is less than 20% of the sale price.
For more information about various loan types and which is the right one for you, please contact your Hamilton Group Funding mortgage loan originator.
Financing subject to credit approval. Some restrictions may apply. Other programs available. Program conditions subject to change without notice.