Fixed Rate Mortgages
The most basic of mortgage product. It comes in different amortizations from
10-30 years and is primarily characterized by equal payments over the life of the mortgage.
Fixed rate mortgages are a good idea in times of low interest rates or for lower mortgage
balances. These types of mortgages tend to have the highest monthly payment.
Adjustable Rate Mortgages (Option ARM Informational Flyer)
Adjustable rate mortgages or ARMs have been the popular choice for borrowers for a number of
years. The main reason is the lower monthly payment as compared to the fixed rate mortgage.
The most widely used adjustable rate loans are the 3 and 5 year ARMs. The payment on these
types of mortgages stay fixed for three and five years respectively. Other options include
the 6 month, 1 year, 7 year and 10 year ARM and the
Option ARM. ARMS are characterized by being fixed for a
certain period of time and then adjusting every year afterwards. The new interest rate is
determined by the margin and the index. The payment will continue to adjust every year up
or down to a certain rate or until they reach the cap or floor. These mortgages are best
used when borrowers are in their home for a shorter period of time or would like a smaller
monthly payment.
Lender Paid Mortgage Insurance (Informational Flyer)
Lender paid mortgage insurance is one of the newer ways borrowers can have a small down
payment and not have to pay mortgage insurance. This program is unique in that it also does
not require a second mortgage or line of credit. Instead, the lender will forgo the
private mortgage insurance premium (PMI) for a slightly
higher rate on the borrower's first mortgage. Borrower's have tended to use a second mortgage,
usually a Home Equity Line of Credit, as a way to avoid paying PMI on a monthly basis. However,
if you are in a rising interest rate environment, your line of credit (LOC) payment will tend to move
up as well. That's because the LOC is tied to the Federal Reserve and their influence on interest
rates and most line of credits come standard with a variable rate.
Interest Only Mortgages
One of the borrowers options in choosing a mortgage is the interest only mortgage. Associated
with virtually every standard mortgage product, the interest only option affords borrowers
smaller monthly payments than the fully amortized version of the loan. The interest only portion
of the loan is limited to a specific time period. With adjustable rate mortgages it is
typically the fixed portion of the loan. In other words, if a borrower chooses a 5 Years ARM
mortgage product, the loan would be interest only for the first five years when it is fixed.
Once the mortgage begins to adjust, the payment for the remaining loan balance will be made on
a fully amortized basis, that is a principle and interest payment.
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