|15- and 30-Year Fixed-Rate Mortgages
- The interest rate does not change.
- Principal and interest (P & I) do not change.
- Fixed-rate mortgages fully amortize over a defined period of time and are paid in full at the end of the loan term.
- Different loan terms are available (15- and 30-year terms are the most popular).
- The shorter the term, the faster equity is built and the loan is paid off.
- P & I payment and interest rate do not change.
- Regular monthly P & I payments are based on a 30-year amortization, while the unpaid balance (balloon) is due at the end of a shorter, predetermined term, typically 5, 7, or 10 years.
- The interest rate is typically less than fixed-rate loans.
- Most borrowers anticipate refinancing or selling prior to the end of the balloon term.
|Fixed-Rate with Temporary Buydown
- Borrowers or the seller may pay to temporarily "buy down," or lower, the interest rate.
- Decreased interest rate reduces the monthly payment.
- A lower interest rate may help borrowers qualify more easily; qualifying factors may vary.
- Interest rate/payment is typically reduced for 1, 2, or 3 years
- There are no reductions to the principal amount.
- There is no provision for negative amortization.
- Payments may increase up to an amortized amount, but the loan balance itself does not increase.
- Generally, interest-only payments are limited to the first 5, 10, or 15 years of the loan.
- After that, the loan is amortized for the remainder of its term
|Adjustable-Rate Mortgages (ARMs)
- There is potential for the interest rate/ payment to fluctuate.
- ARMs transfer to borrowers a portion of the risk associated with a changing economy.
- In exchange for sharing the risk, ARMs offer borrowers initial interest rates that are substantially lower than fixed-rate mortgages.
- The lower interest rate may help borrowers qualify more easily; qualifying factors may vary.