This is a great time to apply for a mortgage loan. Interest rates are still low. Many borrowers are able to qualify for rates under 4%. And even better? Mortgage lenders today offer a wide variety of loan types. Borrowers with solid credit scores should have little trouble finding a home loan that works for their varied financial situations.
Here’s a look at some of the choices on the most popular mortgage smorgasbord available today. If you need help choosing, give us a call. We’d be happy to discuss your options.
30-Year Fixed-Rate: The 30-year fixed-rate mortgage (FRM) loan remains a favorite among borrowers. And why not? This mortgage comes with lower monthly payments because of its long life. Plus, the interest rate is fixed, so borrowers always know how much they’ll pay in principal and interest each month. (Your payments can still change, though, if taxes or insurance bills increase or decrease.) The downside? Because repayment is spread out over three decades, borrowers who pay off a 30-year loan in full will pay a lot more interest than those with different loan types.
15-Year Fixed-Rate: The 15-year fixed-rate loan comes with all the benefits of the 30-year version. But borrowers will pay far less interest each month because the repayment period is cut in half. The interest rates attached to 15-year mortgages are also lower than those that come with 30-year loans. However, because of the shorter term, a 15-year mortgage does come with higher monthly payments.
Hybrid ARMs: An adjustable-rate mortgage (ARM) features interest rates that are fixed for a certain number of years, often five, seven or 10. After that fixed period ends, though, the interest rate adjusts on a pre-set schedule according to the performance of whatever financial index the loan is tied to. Hybrid ARMs come in several varieties, but they all operate similarly: The 5/1 ARM, for instance, features a fixed-rate period of five years, while a 7/1 hybrid has a seven-year fixed period before the interest rate begins adjusting each year. The main benefit of these loans is the low initial interest rates that come with them. ARMs usually start with interest rates that are lower than those attached to fixed-rate loans. It’s important, though, for consumers to understand just how high their rate can jump each year once their loans enter the adjustable period and how that affects their payment—and ability to pay.
5/5 ARM: The 5/5 ARM is a relative newcomer. In this type of ARM, the interest rate is fixed for five years, then can adjust once every five years until the loan is paid off, the owner refinances it or the owner sells their home. This loan combines the low interest rate of an ARM with a bit of the stability that comes with a fixed-rate loan. Another variation is a 15/15 ARM.