Loan Is Right For You?
are a number of choices.
have many choices with regards to which type of loan may be best
for you, depending on both your current financial situation and
your future plans. Below we discuss some of the more common types.
Which one truly best suits your needs is a topic you will want to
discuss at length with your loan consultant.The majority of mortgages-loans
fall into three categories: Fixed Rate, Adjustable Rate, and Hybrid
Loans, which combine features of both.
With a Fixed Rate Mortgage your interest rate does not change for
the term of the loan. Traditionally, Fixed Rate Mortgages have been
the most common and popular choice with Homeowners when interest
rates are low, as you can then secure a low interest rate. Fixed
Rate Mortgages are most commonly in 30-year and 15-year terms.
interest rate will remain the same despite negative fluctuations
in the market.
The 30 Year Fixed Rate Loan vs The 15 Year Fixed Rate Loan
30 Year Fixed
Lower monthly payments than a 15 Year Fixed.
Higher interest rate than a 15 year fixed.
15 Year Fixed
Lower interest rate than a 30 Year Fixed. Build equity faster in
Disadvantages: Higher monthly payment than 30 Year Fixed.
a Fixed Rate Mortgage, whether 15 year or 30 year, is a good choice
when you plan on remaining in the property for a long time, say,
for more than 5 years.
Adjustable Rate Mortgage (ARM)
Adjustable Rate Mortgages are different from Fixed Rate Mortgages
in that the interest rate and monthly payment can change over time,
depending on the market. This is because the interest rate for an
ARM is bound to a nationally published index, like United States
Treasury Bills (T-Bills), that may rise or fall over the course
of the loan period. ARMs will normally have caps that protect the
Homeowner by limiting how much the interest rate can increase over
time. ARM loans have become the most popular alternative to Fixed
Rate Mortgages, due to their low introductory rates and in-built
an Adjustible Rate Mortgage can be a good choice if you do not intend
to live in the property for more than 5 years.
Hybrid Loans combine elements of both Fixed Rate and Adjustable
Rate Mortgages. A Hybrid Loan may start with a Fixed Rate for a
certain period of time, and then later convert to an Adjustable
Rate. It is important to check with your Lender so that you understand
how much the rate may increase because some Hybrid Loans do not
have caps for the adjustment period.
charge lower introductory rates for Hybrid Loans.
Balloon Payment Loan
A Balloon Payment Loan refers to a loan that has a large, final
payment due at the end of the loan. For example, there are currently
Fixed Rate Loans which allow Homeowners to make payments based on
a 30-year loan, even though the entire balance of the loan may be
due (the Balloon Payment) after 7 years. As with some Hybrid Loans,
Balloon Payment Loans may be attractive to Homeowners who do not
plan to stay in their home more than a short period of time.
Time As A Factor In Your Loan Choice
As has been discussed, the length of time you plan to own a property
may have a strong influence on the type of loan you choose. For
example, if you plan to stay in a home for 10 years or longer, a
traditional Fixed Rate Mortgage may be your best bet. But if you
plan on owning a home for a very short period (5 years or less),
then the low introductory rate of an Adjustable Rate Mortgage may
make the most financial sense. In general, ARMs have the lowest
introductory interest rates, followed by Hybrid Loans, and then
traditional Fixed Rate Mortgages.
FHA and VA Loans
U.S. government loan programs such as those of the Federal Housing
Authority (FHA) and Department of Veterans Affairs (VA) are designed
to promote home ownership for people who might not otherwise be
able to qualify for a Conventional Loan. Both FHA and VA Loans have
lower qualifying standards than Conventional Loans and often require
smaller or no down payments.
Bear in mind, however, that FHA and VA Loans are not issued by the
government; rather, the loans are made by Private Lenders but insured
by the U.S. government in case the borrower defaults. Remember too,
that while any U.S. Citizen may apply for a FHA Loan, VA Loans are
only available to Veterans or their spouses and certain government
A Conventional Loan is simply a loan offered by a traditional Private
Lender. They may be Fixed Rate, Adjustable, Hybrid or other types.
While Conventional Loans may be harder to qualify for than government-backed
loans, they often require less paperwork and typically do not have
a maximum allowable amount.
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