Types Of Loan Programs Fixed vs Adjustable

One of the first choices a home-buyer will need to make is whether you want a fixed-rate or an adjustable-rate mortgage (ARM) loan.  The bulk of loans will fit into one of these two categories.

An adjustable-rate mortgage (ARM): The interest rate of the mortgage adjusts periodically based on market conditions.  For example, your payment will go up if rates go up and go down if rates go down.  The advantage to ARM loans is that your initial rate is typically lower than a fixed rate but still amortized over 30 years in most cases, which gives you a lower monthly mortgage payment.  It features an initial fixed interest rate for a certain amount of time and then becomes an adjustable-rate for the remainder of the term.  Standard terms are 3, 5, 7, or 10 yrs which then adjust every year after the initial period.  These loan options are most popular on Jumbo Mortgage Loans since a small reduction in the rate can have a more dramatic affect on larger loan amounts.  Other considerations for an ARM loan would be a home that is temporary, 3-10 years, or if you plan to rehab and refinance the loan once you have more equity within that time-frame.

Fixed-rate Mortgage: Unlike an adjustable-rate mortgage the interest rate is set at the time you take out the loan and will not change.  Fixed-rate home loans can be 10 years, 15 years, 20 years. 25 years or 30 years fixed.  A 30-year fixed loan is the most common because it allows your mortgage payment to be the lowest without having adjustments when the market conditions change.  These are the most common loan terms for primary residence that you plan to live in long term, especially when rates are low.