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Basic Mortgage Products
Fixed-rate mortgage
The fixed-rate mortgage has long been the most popular home financing product. With an interest rate that
never changes, it provides stable, predictable monthly payments throughout the life of the loan. Your monthly
payments won’t decrease if market rates go down, but you’ll have the comfort of knowing you are protected if
rates go up.
If you plan to stay in your home for more than seven years, and prefer the security of stable payments to being
at the mercy of the market, a fixed-rate mortgage may be the best option for you.
Adjustable-rate mortgage (ARM)
An adjustable-rate mortgage has a low starting rate, so your initial monthly payments on an ARM will be lower
than on a fixed-rate loan for the same amount. And because the amount you can borrow is based partly on
how much you can pay each month, your maximum loan amount will probably be higher with an ARM.
Here's how it works:
· The interest rate starts out lower than the rate on a fixed-rate mortgage, then adjusts regularly based on
market indicators.
· The starting rate stays fixed for between three months and 10 years, depending on the ARM product.
· Most ARMs adjust annually, but some adjust on a semi-annual or monthly basis.
· Individual adjustments are capped at a certain amount, and the rate can never exceed the lifetime
Keep in mind that the interest rate and monthly payments can increase during the loan term. You may get the
most value from an ARM if you plan to move before the end of the fixed-rate period, or if you’re buying at a
time when rates are relatively high.
Balloon mortgage
A balloon mortgage has a lower rate and lower monthly payments than a fixed-rate mortgage. Like an ARM, a
balloon loan can help you either save money each month or borrow more for your home purchase.
Monthly payments on a balloon loan are fixed for the five- or seven-year loan term. A final “balloon” payment
for the entire remaining balance is due at the end of the term.
A balloon mortgage is a good option if you:
· Only plan to stay in your home for five to seven years
· Don’t expect rates to rise significantly before the loan matures
· Expect to have the money to make the final payment at the balloon date
· Want predictable monthly payments
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