Fixed-Rate Mortgage
The interest rate on a fixed-rate loan will never change, as long as you hold your mortgage. Fixed rates are available in a number of different term lengths such as 15, 20, or 30 years. |
Advantages:
Rate and payment will never increase
Usually no pre-payment penalty, so you can refinance
Disadvantages:
Rates are usually higher than adjustable mortgage products
Rates will not drop if interest rates go down
Fixed-Rate Mortgage Suitable For:
People who plan on owning their home for longer periods
People who are averse to risk and want steady payments
People who have fixed incomes |
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Adjustable-Rate Mortgage
The interest rates on an adjustable-rate mortgage the interest rate is fixed for a certain time. After that time the actual rate fluctuates based on market conditions (Interest Rate = Index + Margin). The loan agreement generally sets maximum and minimum rates. |
Advantages:
Initial monthly payments are lower than other products
Borrow can qualify for larger loan amounts because rate is lower.
Disadvantages:
Payment not steady, and depending on interest rates may increase.
Adjustable-Rate Mortgage Suitable For:
People who plan on owning their home five years or less
People who anticipate their incomes to steadily increase over time. |
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Interest-Only Mortgage
With this loan, your monthly payment consists only of interest and not principle. There is usually a final balloon payment at the end of the loan term. |
Advantages:
Offers lower monthly payments.
Provides more tax deductions
Disadvantages:
More riskier than amortized loans. |
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Stated Income Mortgages
With this loan you state what your income is on your loan application. The actual amount of your income is not verified, however, some programs do verify that you are employed. Lenders provide fixed and adjustable-rate products under the stated income category. |
Advantages:
It is not necessary to verify how much you make.
Disadvantages:
The interest rates are typically higher. |
