Types of Loans
Long Term Fixed-Rate Mortgages
The traditional 20 or 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then adjustable-rate loans are usually less expensive. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.
Shorter Term Fixed-Rate Mortgages
These loans are fully amortized over a 7, 10 or 15-year period and features constant monthly payments. They offer all the advantages of the 20 or 30-year loan, plus a lower interest rate—and you'll own your home twice as fast. The disadvantage is that, with a 7, 10 or 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 7, 10 or 15 years.
Adjustable Rate Mortgages
These increasingly popular ARMS—also called 3/1, 5/1,7/1 or 10/1—can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25 years. Those who plan to move (or refinance) before or shortly after the adjustment occurs may want to consider this choice.
All loans subject to credit approval. Restrictions apply; see banker for details.