Mortgage Options

Just like searching for your dream home, identifying the mortgage that best meets your needs can be a process. There’s no such thing as a one-size-fits all mortgage, so it’s important to familiarize yourself with the different types available.

There are two major loan categories:

Fixed rate mortgages enable you to “lock in” the same interest rate over the entire period of the loan, which usually ranges from 15 to 20 years. The downside? If interest rates fall, you’re stuck paying the higher rate (although refinancing is an option. Conversely, if rates rise, your fixed interest rate protects you from the high costs associated with loans attached to higher interest rates.)

Variable rate mortgages, also known as adjustable rate mortgages (ARMs), are tied to the rates and fortunes of US Treasury bonds, which are in turn tethered to the fortunes of the U.S. economy. As the economy ebbs and flows, interest rates move up and down accordingly. Variable mortgages usually offer lower interest rates up front, with the prospect of seeing those rates rise after a predetermined period of time (usually after five-to-seven years).

Within these two categories, there are a number of mortgage options including:

3/1 ARM – This loan type has fixed payments for the first three years and then turns into
a one-year ARM, adjusting every year thereafter. The loan payments are calculated over a
period of 30 years.

5/1 ARM – This loan has fixed payments for five years and then turns into a one-year ARM,
adjusting every year thereafter. The loan payments are calculated over a period of 30 years.

7/1 Adjustable Rate Mortgage (ARM) – This loan has fixed payments for seven years and then
turns into a one-year ARM, adjusting every year thereafter. The loan payments are calculated
over a period of 30 years.

10/1 ARM – This loan has fixed payments for 10 years and then turns into a one-year ARM,
adjusting every year thereafter. The loan payments are calculated over a period of 30 years.

30-Year Fixed Rate Loan – Payments on 30-year loans are calculated over a period of 30 years
and have a fixed interest rate and payment for the life of the loan.
While these are the basic mortgage options, more choices may be available to you if you are a Veteran, have to low- to moderate income or need down payment assistance. Talk to your Mortgage Advisor today to see which option might be right for you!