Fixed Rate vs. Adjustable Rate Mortgage
With a fixed rate mortgage, the interest rate stays the same throughout the entire term of the loan. Meaning, your monthly payment will remain the same.
With an adjustable rate mortgage (ARM), the interest rate will vary from year to year. Typically, a rate will remain fixed for a period of time, then change every year after.
For example: a 5/1 ARM means the interest rate will remain fixed for 5 years and change every 1 year after that.
The term of a mortgage loan refers to the life of the loan. It could be 15 years, 30 years, etc. As with any loan, the longer the loan term, the lower the monthly payments. However, you could be paying more in interest over time. Keep in mind that your first few years of mortgage payments primarily go towards the interest accumulating on the loan, with very little going towards the principal amount.
Conventional vs. Unconventional Loans
Conventional Loans are loans that are not backed by the government. If you are making less than a 20% downpayment on a conventional loan you may be required to purchase private mortgage insurance (PMI) as well.
Unconventional Loans are loans that are backed by the government. A FHA (Federal Housing Administration) loan is a type of unconventional loan that requires as little as a 3.5% downpayment for a home. Alongside FHA loans typically comes mortgage insurance premiums as well. VA loans are another type of unconventional loan offered to veterans and their families. VA loans require no downpayment. Note that with VA loans there is a funding fee associated with acquiring the loan. This funding fee can be reduced by placing at least 5% down at the time of closing.
Subprime mortgages are usually offered to borrowers with low credit ratings. Because the lender is assuming a greater risk due to the potential default from the borrower, interest rates are typically higher on subprime loans.
Note: The author is not a mortgage lender. This is an overview of terminology associated with mortgage loans. Please refer to a mortgage lender to discuss which mortgage is right for you.
My name is Erika D’Argenio. Originally from the Washington DC area, I relocated to South Florida to enjoy the warm weather, beautiful beaches, and diverse culture. Prior to entering real estate, I was an elementary school teacher which gave me the ability to recognize and value the trust and confidence that individuals place in me and gave me the discipline to exceed those expectations each day. As an empathetic, hardworking, and trustworthy professional, I will help you maneuver one of the most significant and stressful life events of buying or selling a home with ease. By working with Coldwell Banker, my expertise in market knowledge and online marketing allows me to help buyers and sellers make confident decisions in today’s real estate market.
I strive to do more than just help buyers and sellers, I strive to establish a life long relationship with customers through my enthusiasm, professionalism, and positivity.