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A loan which has an interest rate and monthly payment that remain constant or "fixed" during the term of the loan.
A mortgage with an interest rate that may change or "adjust" during the loan term based on the Treasury Bill rate or the prime rate. A borrower may start with a lower interest rate and monthly payment for a set time period with an "ARM". The interest rate and payment can adjust on a monthly, semi-annual or annual basis after the initial time period depending on the program. Each "ARM" program follows a specific index and has a fixed margin as well as periodic and lifetime caps. The periodic caps limit the increase or decrease of its periodic adjustments. The lifetime cap limits the maximum the interest rate can increase during the loan term.
A mortgage that has a combination of a fixed rate and an adjustable rate is called a hybrid ARM. They begin with a fixed interest rate, and after an initial time period change to an adjustable rate. The fixed interest rate is generally for 2, 3, 5, 7 or 10 years, and after this time period, the loan converts to an ARM that follows the ARM guidelines.
These loans have monthly payments that are only based on interest with no principal payment required. They may be either fixed rate or adjustable rate. The monthly payment of an interest-only loan is lower than the standard principal-and-interest payment. The reduced monthly payment allows a borrower to qualify for more home while they pay off other high interest debt with the money saved from the lower payment. Interest-only loans are also beneficial for those who want to invest in other opportunities that yield a higher rate of return.
FHA (Federal Housing Administration) and VA (Veterans Affairs) loans are government insured loans. FHA loans require a 3% down payment, and VA loans require 0% down. Both loans have flexible lending guidelines which makes it easier for buyers to qualify for the loan. |
