There are a variety of home loan programs available to borrowers today with a number of options for each one. Following are brief summaries of the types of loans you might want to discuss with your loan expert. Your experienced loan officer will be able to provide details of each one and how they might fit your needs.

1. Fixed-Rate Mortgage

With a fixed-rate mortgage, the interest rate (and, therefore, the principal-and-interest payment) stays the same for the life of the loan. You’ll know that your monthly payments will remain just about the same for the life of the mortgage. (We say “about the same” because sometimes your taxes and insurance might change a bit.) Fixed-rate mortgages are generally written for a term of either 15 years or 30 years, although others, such as 25, 20, and 10 years, are available. A tip: You’ll pay off the mortgage and own your home free and clear and save a lot on interest payments in half the time with a 15-year mortgage rather than a 30-year mortgage. However, the monthly payments are higher on a 15-year mortgage.

2. Adjustable-Rate Mortgage (ARM)

With an adjustable-rate mortgage, the interest rate changes from time to time according to specified terms. When the interest rate changes, so does your monthly payment—and it can go either up or down. The payments are usually subject to a limit or “cap” for each adjustment and for the term of the loan. The initial payments on an ARM are usually lower than those for a fixed-rate mortgage, but there is a chance they could go much higher if market conditions change. Adjustable-rate mortgages can have several variations. A few of them include:

• Convertible ARM. An adjustable-rate mortgage that can be converted to a fixed-rate mortgage.
• Two-Step Mortgage. A type of ARM in which the interest rate is adjusted only once. Examples: A 5/25 mortgage has one rate for the first 5 years and another rate for the last 25 years. A 7/23 mortgage has one rate for the first 7 years and another rate for the last 23 years.
• Short-Term Balloon Mortgage. A loan with low payments and a low-interest rate for a few years (three to ten) years, at which time the borrower must pay off the remainder of the loan or refinance the mortgage.
• Graduated-Payment Mortgage. A loan in which the interest rate and payments are quite low at the beginning and then rise after a specified amount of time. Sometimes only part of the interest is paid in the early months and the rest is added to the outstanding balance of the loan.

3. Interest-Only Mortgage

With this mortgage, which can be fixed or adjustable rate, the borrower pays interest-only for a specific amount of time, such as the first 5 to 7 years. Then the borrower may be required to pay off the balance, refinance, or pay much higher payments. This type of loan is good for someone who expects a large increase in income or where rapidly increasing housing prices will build equity. Be cautious as it does involve some risk: nothing is paid on the balance during the interest-only period.

4. Reverse Mortgage

This program was designed for retirement-age homeowners. It enables them to take money out of the equity in their property, either in a lump sum, monthly payments, or a line of credit. The amount that can be paid to the homeowners varies, depending on such factors as their age, property value, equity, and location. Due to the unusual nature of this program, the U.S. Department of Housing and Urban Development (HUD) requires the homeowner meet with an approved counseling agency.

©2004, Brian Sacks. All rights reserved. Brian Sacks is a nationally known speaker, author and educator with 20 years experience in the mortgage industry. He is recognized as THE expert in credit challenges, helping those with bankruptcy and poor credit get home loans. Yes, You Can Get A Mortgage is available in paperback or instant e-book download. Brian is a member of the National Advisory Councils for GoGetLoan.com, GoGetNotary.com, GoGetEscrow.com and GoGetRealEstate.com. For more about Brian, visit his page here.

Home Equity
Rates as low as 5.74% with intro
rates as low as 4.74%

Compare Rates From Top Lenders.
Refinance. No Fees. Get Free Quotes!

Refinance Your Mortgage Now!
Bad Credit OK! No Social Security
number required.

Get Insurance Quotes!
Home, Auto, Life, Health