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Fixed Rate Mortgages:
The interest rate for this loan will remain the same for the life of the loan or the term. The payment is constant for the duration of the loan. Each monthly payment, you will repay a portion of the principle plus the interest.
These loans can be fixed for 30, 20, 15years; the monthly payment will completely pay the loan amount at the end of the term.
There are 2 types of fixed rate loans, Conforming or Jumbo. The industry has determined that a conforming loan is any amount under $417,000.00 and that a non-conforming or jumbo is any amount above the $417,000.00. The interest rates for a non-conforming loan are slightly higher than conforming.
Adjustable Rate Mortgages:
An ARM is an adjustable rate mortgage, they differ from the fixed rate mortgage. The interest rate and the monthly payment are fixed for a short period of time but are still amortorized over a 40,30,20,or 15 year term. Most adjustable rate mortgages are fixed for a period of 3, 5 or 7 years. After this fixed period they will adjust annually. These loans due come with some level of comfort for the Borrower in that they have a life cap. These caps limit the amount by which the ARM interest rate can adjust.
Interest Only Adjustable Rate Mortgages:
This type of mortgage allows you to pay only the interest portion of the payment for a fixed period of time. Most of these loans have a fixed period of 3,5,or 7 years. When this fixed period is completed you will begin to pay the principal and interest over the remaining term of the loan. You always have the option of making more than the minimum payment and having it applied towards the principal. The lender will then recast (re-calculate) the payment based on the remaining balance.
These are the most popular loan programs available. The banking industry has made home purchase much less tedious for the average Borrower.
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