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A Guide to Mortgage Products and Terms

Whether you’re buying or refinancing, selecting a mortgage product and its terms can be confusing.  In the mortgage guide below we break down the characteristics of each product and term options we offer to help you make a decision.  Remember, speaking with one of our licensed loan officers is the easiest way to determine which product and terms will work best for your unique circumstances, so give us a call or apply online today!

Fixed Rate (30-15 Year Terms)

A Great Option For Those Planning To Stay

With a fixed rate mortgage, the principle and interest portion of your loan remains the same for the entire loan term.  You monthly payments and loan term are fixed when you originate the loan providing you with predictability and security.

Pros:

  • Rate security and predictable payments make it easier to plan a budget
  • You can refinance to a lower rate and term when available

Cons:

  • The longer the term the more you will pay in interest over the life of your loan
  • A lack of customization makes it difficult to tailor your loan to your unique needs

Adjustable Rate (10-15 Year terms)

May Be Great Option For Those Not Planning To Stay Long

With an adjustable rate mortgage (ARM) the interest rate paid on the outstanding balance varies according to a specific benchmark.  The initial interest rate resets periodically.

Pros:

  • May save money on interest if you’re only in the home for a few years
  • Annual and lifetime caps limit the changes to the interest rate

Cons:

  • Rate changes are tied to an index and margin tied to market trends and may result in an increase in the interest rate
  • Budgeting can be difficult due to fluctuating payments

FHA (30-15 Year Fixed & ARM Terms)

May Be a Great Option For First-Time Buyers Or Those Who Don’t Qualify For A Conventional Loan

Insured by the Federal Housing Administration (FHA), and FHA mortgage may have easier qualification and down payment requirements than a conventional mortgage.

Pros:

  • Allows for a down payment as low as 3.5% which means up to 96.5% financing
  • Qualifying for an FHA loan is much easier than for a conventional loan

Cons:

  • Such a low down payment means paying more in interest over the life of the loan
  • Mortgage insurance premiums are required of all FHA loans 

HARP (30-15 Year Fixed Terms) HOME AFFORDABLE REFINANCE PROGRAM

May Be A Great Option For Those Looking For A New, More Affordable And Stable Mortgage

HARP is a federal program established by FHFA (Federal Housing Finance Agency) to help underwater homeowners refinance their mortgages.  This program is available through December 31, 2016 and only applies for loans owned by Fannie Mae or Freddie Mac.  With HARP, borrowers may get a lower interest rate, shorter loan term, or change from an adjustable to fixed rate mortgage.

Pros:

  • Qualifying is made easier for those who are near underwater to help them keep their homes
  • Closing costs are capped and no mortgage insurance is required to be added if the previous mortgage did not require it

Cons:

  • Only an option for those loans insured by Fannie Mae or Freddie Mac
  • Loan to Value ratio must be greater than 80% in order to qualify 

JUMBO (30 Year Fixed or 7/1 ARM)

May Be A Great Option For Those Needing Higher Purchasing Power Without Taking Out A Second Loan

A Jumbo Mortgage is a home loan with an amount that exceeds conforming loan limits established by Fannie Mae and Freddie Mac, the two government sponsored enterprises that buy mortgage from lenders.  Higher down payments may be required for Jumbo mortgages due to the higher loan amount.

Pros:

  • The higher your credit score the less you will pay in interest through the life of the loan
  • Good credit history and meeting the income requirements are the main qualifiers

Cons:

  • Because they are a higher risk than conventional loans you may pay higher interest rates
  • Larger down payments may be required

 

View a side by side comparison of the mortgage products listed below HERE!

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Homeward Residential Inc. is not licensed to originate mortgage loans in all states.