Mortgage Intro
When purchasing a home, getting a mortgage is often the most stressful part of the process, especially for first-time homebuyers. Today, there are many different types of mortgage products, all with their own advantages and disadvantages. As we have seen over the past couple of years, not understanding a mortgage home loan can lead a homeowner to make a decision that will negatively impact them for the rest of their lives.
So relax, take a deep breath, and let us help you decide what mortgage is best for you and help you find the best mortgage rate.
The table below, provides a basic overview of the some of the different types of mortgage products available.
| Mortgage Product | Description | Advantage / Disadvantage |
|---|---|---|
| Fixed Rate Conforming Mortgages | Mortgage amount under $417,000, apart from Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the limit is $625,500 | Advantage:
Disadvantages:
|
| Fixed Rate Jumbo Mortgages | Mortgage amount above $417,000, apart from Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the limit is $625,500 | Advantage:
Disadvantages:
|
| Hybrid Adjustable Rate Mortgages | Mix of fix rate and adjustable rate loans. The interest rate is fixed for the first few years of these loans--for example, for 5 years in a 5/1 ARM. |
Advantages:
Disadvantages:
|
| Interest Only ARMs | You pay the interest only for a fixed period of years, usually 3 to 10 years. After fixed period, payments will increase and may also adjust based on interest rate changes. |
Advantage:
Disadvantages:
|
| Payment Option ARMs |
An adjustable-rate mortgage that allows you to choose among
several payment options each month. These include:
|
Advantage:
Disadvantages:
|
| FHA Loans | A loan that is backed by the FHA, Federal Housing Administration. | Advantages:
Disadvantages:
|
Visit our Adjustable Rate Mortgages page to learn more about these types of loans.
FREQUENTLY ASKED QUESTIONS
What is a fixed-rate conforming mortgage?
A fixed-rate conforming mortgage is a loan for amounts under $417,000 (apart from Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the limit is $625,500) with an interest rate that stays the same for the entire term, so the mortgage payment never increases. The tradeoff is a higher initial monthly payment than an adjustable rate mortgage, and if rates drop you'd need to refinance to take advantage of the lower rate.
What is a fixed-rate jumbo mortgage?
A fixed-rate jumbo mortgage is a loan for amounts above $417,000 (above $625,500 in Alaska, Hawaii, Guam, and the U.S. Virgin Islands) with a rate that is fixed for the full term, so the payment never increases. Jumbo mortgages often carry higher rates than a conforming mortgage of the same term and a higher initial payment than an adjustable rate mortgage, and you would need to refinance if rates drop.
What is a hybrid adjustable-rate mortgage (ARM)?
A hybrid ARM mixes a fixed-rate period with an adjustable-rate period - for example, a 5/1 ARM has a rate fixed for the first 5 years. It offers a lower initial rate, and if rates have dropped by the time the fixed period ends you benefit without refinancing. The risk is that if rates rise, your payment increases, and hybrid ARMs are more complex to understand, since you need to factor in the adjustment period, rate index, and rate caps.
What is an interest-only ARM?
An interest-only ARM lets you pay only the interest for a fixed period, usually 3 to 10 years. After that period, payments increase substantially and may also adjust with interest rate changes. Interest-only ARMs mean smaller payments at first, but you build no equity in your home during the interest-only period, payments jump once it ends, and - like other ARMs - you need to understand the adjustment period, rate index, and rate caps.
What is a payment option ARM?
A payment option ARM lets you choose among several payment options each month: a traditional principal-and-interest payment, an interest-only payment, or a minimum payment that may be less than the interest due, with the difference added to your loan's principal. This flexibility can help if your income is irregular, but if you don't make full payments, your principal balance grows instead of shrinking, and the loan is more complicated to manage, since you need to understand the adjustment period, rate index, and rate caps.
What is an FHA loan?
An FHA loan is a mortgage backed by the Federal Housing Administration. It lets you buy a home with a down payment as low as 3.5%, makes it easier to use gifted funds for your down payment and closing costs, carries no prepayment penalty, and may be assumable by a future buyer. In exchange, you'll need reasonable debt-to-income ratios and decent credit, and FHA loans have limits on how much you can borrow.
Below are rates for purchase and refinance mortgages.
