Mortgages generally fall into two basic categories:
Fixed rate mortgage:
Monthly loan payments stay the same for the life of the loan.
May be the best choice if you plan to stay in your home for a long time.
Fixed rate mortgages traditionally have 15-year or 30-year amortization terms.
Adjustable rate mortgage (ARM):
The interest rate is fixed for a certain number of years and then increases or decreases periodically based on a benchmark economic index.
With every rate adjustment, the mortgage payment will change.
The initial rate of an ARM is usually lower than that of a fixed rate mortgage.
Mortgage loans are also classified as:
Conforming loan:
A mortgage loan that meets all of the eligibility requirements set by federal agencies such as Fannie Mae and Freddie Mac.
The maximum conforming loan amount changes from time to time and varies according to geographical location.
Jumbo loan:
A loan for an amount of money larger than the conforming loan limits set by government-backed agencies Fannie Mae and Freddie Mac.
Loan limits in high-cost areas vary by location.
What works for you
Advantages
Disadvantages
Fixed rate mortgage
Interest rate doesn’t increase during the life of the loan.
The total monthly payments of principal and interest don’t change.
May be a good choice for a buyer who plans to own the home for a long time.
The interest rate is often higher than the initial rate for adjustable rate mortgage.
May not be suitable for a buyer planning to sell or refinance within five to seven years.
Adjustable rate mortgage
The initial interest rate is often lower than the rate for a fixed-rate mortgage.
After the initial fixed rate period, monthly payments could decrease if interest rates go down.
May be a good choice for a buyer who plans to sell or refinance within five to seven years.
After the initial fixed rate period, monthly payments could increase if interest rates go up.
May not be ideal for a buyer on a fixed income.
May not be optimal for a buyer who plans to keep the property for longer than the initial fixed rate period.
All loans are subject to credit review and approval. Rates, program terms and conditions vary by state and are subject to change without notice.
The information described herein is for educational purposes only and does not constitute and is not intended to be viewed or construed as professional advice. We recommend that you seek professional advice with respect to your specific situation.
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