Fixed Rate
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Fixed Rate - This standard form of a mortgage has two basic characteristics that do not change throughout the liof the loan: the interest rate and the repayment term. In addition to the principal and interest the lender often collects monthly on the amount needed to pay annual taxes and insurance. This amount can sometimes be known as impound fees or escrow funds, this amount can be determined by taking the cost over the year dived by 12. Although, the principal plus interest payment remains constant over the life of the loan, the amount needed to pay taxes and insurance may vary, resulting in the change in the total monthly payment. The accured interest due on the loan is always paid first, with the balance of the payment allocated to principal, taxes and insurance accordingly. The result of this standard payment format is that the borrower begins to build equity with the first monthly payment.
Todays fixed rate mortgages are available in terms of 15,30,40 and 50 years. By going with a longer term you will be able to lower your payment, afford more house and you will be able to pay off the mortgage with the security of a fixed rate.
This being the most common type of mortgage, consists of one fixed interest rate for the complete term of the mortgage, so you always pay the same monthly payments for the life of the loan. This offers consistency, an advantage for borrowers on fixed or limited incomes.
A 30 Year Loan may be an Adjustable Rate Mortgage or a Fixed Rate Mortgage since both mortgage types can be amortized over 30 years. To ensure you truly are in a fixed rate mortgage, review the Truth In Lending, this document should show no adjustment in payment.
A Fixed rate does offer the most in safety and lack of risk of any loan program. That safety comes with a price, however. The payment on a 30 year fixed mortgage will be the highest payment of any program that you select.
In addition to a 30 year fixed loan, you can get a 15 year fixed rate mortgage. Most people believe that, since the mortgage is paid off twice as fast, the payment must be twice as much. This is simply not the case.
15 year fixed mortgages usually have a lower interest rate than 30 year fixed. Since most of your monthly payment is interest, it only takes a small increase in your principle payment to pay off your loan in 15 years. Your total monthly payment can be as low as 15% more than on a 30 year fixed mortgage.
For example, if you had a 30 year mortgage where you are paying $1,000 per month, a 15 year mortgage may cost only $1,150 per month. The exact difference in payment will depend on your own situation. Contact a trusted mortgage professional if you are interested in seeing what the payment difference is for you.
Fixed Rate mortgages have come in a variety of lengths and amortization periods for quite some time. A more recent development is the availability of fixed rate mortgages with minimum payment options, allowing homeowners to make lower payments in exchange for home equity on a month to month basis. Popularized first by adjustable rate mortgages known as option ARMs, fixed rate loans with these "cash flow" payment options are an interesting alternative for borrowers who like the security not only of a fixed rate, but also the safety of a lower payment option for months when cash flow might be allocated more usefully elsewhere in their budget.
Considering the fact that the average American homeowner sells or refinances their home every 5 years, that is a major reason why a fixed rate mrotgage is not always the best program for everyone. An adjustable rate mortgage will usually offer a lower rate and a lower payment.
Although your monthly mortgage payment will always remain the same, the principal payment will go up, and the interest payment will go down with time. The longer you remain in the mortgage, the faster you build equity.
The reason your principal and interest change each month is that you are paying interest on the current amount of the loan. Therefore, since the amount of the loan goes down with each payment, the amount of the interest payment also goes down. Since your total principal and interest payment stays the same, your principal payment goes up.
Also, if you pay more on your mortgage each month than you are required, you will build equity faster, in two ways. First, the added payment goes directly to your equity. Second, you decrease your loan amount, which means you pay less in interest, and more in principal for every month, for the rest of the life of your mortgage.
Fixed Rate Mortgages (FRM) are suitable for homeowners who intent to keep the property for a long time, preferably for the life of the loan. FRM are also good for homeowners who are uneasy about the uncertainty in interest rate trends and the potential increase in future payments that are associated with Adjustable Rate Mortgages (ARM). To accommadate homeowners who do not intent to keep the home for more than 10 years and are uncomfortable with the potential risk of an ARM, most banks offer Hybrid Loans. Hybrid Loans offer a Fixed Rate period for the initial one, three, five, seven, or ten years, followed by an Adjustable Rate for the remainder of the loan term.
One of the misconceptions about mortgage programs the average borrower has is they truly believe fixed rate mortgages are always best. When you understand the mortgage business you begin to see why this is not always the case. When you plan on refinancing your house in just a few years or selling the home in this time frame you may want to consider one of the Hybrids to keep your payments lower. This can save you money over time. Ask your mortgage broker to show you the difference and compare.
ARM loans generally have a lower interest rate than fixed rate loans, and you therefore have a lower payment. However, there are some cases where the interest rate may be the same or even slightly lower on a fixed rate loan that on an ARM. In these cases, it is always better to choose the fixed rate mortgage.
You are probably familiar with a fixed rate mortgage. Your parents more than likely had one, as did their parents before them. The major advantage of fixed rate mortgages is that they present predictable housing costs for the life of the loan
Fixed Rate Mortgage versus an Interest only Mortga - With a fixed rate mortgage (FRM), your monthly payments will be steady
In contrast, with an adjustable rate mortgage (ARM) , your payments will vary over time.
Adjustable rate mortgages typically have an initial fixed rate lower than the rate of a comparable fixed rate mortgage. The initial fixed rate period is followed by adjustment intervals. For example, a "3/1 ARM" is fixed at an initial low rate for the first 3 years, and then adjusts every year based on an index. Common ARMs are: 1/1, 3/1, 5/1, 7/1, and 10/1. (Don't confuse ARMs and balloons )
The average homeowner in America sells or refinances roughly every 5 years. Keeping this in mind, it may not always be in your best interest to go with a fixed rate mortgage for 30 years. An ARM loan may be more appropriate for you, especially if you know you plan on moving or refinancing within the first few years. A 5/1 ARM will generally provide a lower interest rate than a 30 year fixed rate mortgage will and the lower rate will equate to a lower mortgage payment. So think about not just the now when obtaining a mortgage but the near future as well.
Interest Only is an option that can be chosen for most types of mortgages, Fixed or ARMs. The interest only option allows the borrower to make only interest payments. This is usually only allowed for the first 5-10 yrs. Choosing an interest only option can also affect your interest rate. There is usually an add on of 0.25% - 0.5% to the interest rate for interest only payments.
Interest only loans are available with both fixed rates and adjustable rate mortgages. Paying the interest only allows borrowers to lower their monthly mortgage payment.
With an Interest Only loan, you make no payments to principle. They only way to gain equity is to make additional higher payments or choose a home in a high appreciation area.
For borrowers seeking the lowest payments overall without sacrificing the predictability of a fixed rate, fixed rate or hybrid mortgages with interest only or minimum payment options are a popular choice. The minimum payment option is below the interest only payment, which allows the borrower to defer interest payments in exchange for the added cash flow, an excellent choice for some, but not all borrowers.
An interest only mortgage will save you money in the beginning but your payments will increase substantially when the interest only period expires. Interest only mortgages are great when one spouse leaves a career to raise a family or go to school, only to re enter the work force when the payments begin to adjust.
Fixed Rate Pay Option Mortgage - This is a relatively new program available in the realm of Pay Option Mortgages. Traditionally Pay Option Mortgages have a monthly adjustable interest. This new program has a fixed rate for the life of the loan. This means that the only payment to adjust is your minimum payment. This rate will adjust annually. The remaining payments: Interest Only, 30 year and 15 year, will not adjust monthly based on interest rate changes.
It has been touted for its many consumer-benefits. As many people today purchase homes with the intent to move, sell or refinance within the first few years, the ability to offer payment flexibility is increasingly attractive to borrowers.
By combining some of the best features of Option ARM Adjustable Rate Mortgages with the security and stability of a fixed rate for the life of the loan, 30 year fixed rate pay option mortgages allow you to boost cash flow and defer interest without worrying about the huge increases in your underlying interest rate which are common with other loan programs offering similar payment options.
7 Year Fixed Rate Hybrid Mortgage - Sometimes referred to as the "7/1", the 7-Year Fixed Rate Loan is a mortgage where the interest rate is fixed for 7 years. After the 7-year fixed period, the interest rate adjusts, usually once a year, for the rest of the loan term. Most 7 Years Fixed Hybrids are amortized for 30 years. That is, payments are calculated so the home loan is paid off in 30 years.
Statistics have shown that Americans keep their home loans on average for less than 7 years. For younger homeowners who plan to "trade up" their homes. A Hybrid mortgage with a 7-year Fixed Rate period, which usually have a lower initial interest rate than the 15-year Fixed and the 30-year Fixed, may be a better loan option.
Even though a Hybrid offers you the security of a fixed rate mortgage, it also allows for multiple payment options like a traditional Option ARM.
The interest rate offered for this type of ARM is usually lower with a shorter fixed term. So a 7/1 ARM will have a higher interest rate than a 3/1 ARM.
Sometimes the rate differences between these hybrid type mortgages and fixed rate mortgage are so minimal that it may make more sense to obtain a fixed rate mortgage. So make sure that you ask about what all of your rate and program options are up front.
An increasingly competive option to the 7 year fixed or 7 year ARM mortgage is the 30 year fixed rate mortgage. 30 year fixed rate mortgages are currently priced very aggressively, often times at lower rates than 7 year Adjustable rate mortgages.
Under normal interest rate climate, the interest rate of a 7-year fixed rate hybrid is usually lower than that of a 30-year fixed rate mortgage. The "7/1 ARM" is designed for homeowners who do not intend to keep their mortgages for more than seven years to take advantage of the lower interest rates during the initial seven years.
In additon to 7/1 ARMS, there are also hybrid ARMS with different fixed terms, including 3/1 and 5/1.
30 Year Fixed Rate - 30 Year Fixed Rate mortgages are a "classic" mortgage option. While many people think of them as "traditional", when the 30 year fixed rate, fully amortizing principal & interest mortgage was introduced during President Roosevelts administration following the Great Depression, this was a revolutionary financial product which directly resulted in the housing boom we homeowners of America have been enjoying for over 60 years.
Today, the "old fashioned" 30 year fixed rate mortgage is an increasingly attractive option for borrowers who are wisely seeking the security of fixed rates. Interest rates on 30 year fixed rate mortgages havent been this close to traditionally cheaper ARM adjustable rate loans in years, making the argument for borrowers considering refinancing their existing adjustable rate mortgage all the more simple: "A 30 year fixed rate mortgage can actually be cheaper than an ARM mortgage, so why wouldnt I want one?"
30 year fixed rates were considered too expensive by many borrowers, especially when adjustable rates on ARM mortgages were exceptionally low over the past several years. With that argument holding less weight than it used to, more borrowers are considering 30 year fixed rate mortgages than ever before.
Borrowers who stand to benefit most from the resurgence of the 30 year fixed rate mortgage are those who are approaching the end of the introductory fixed rate period of their ARM adjustable rate mortgages.
ARM mortgages have a "teaser" or "start rate" period during which the borrower's payments are artificially low. When that period expires, the rate on their mortgage can increase by as much as 3% or more, and with today's rising adjustable interest rates this can mean that their payments can more than double literally overnight.
Refinancing an expiring Adjustable Rate Mortgage is expected to be the number one reason for borrowers to refinance in 2007 & 2008, and for good reason. With the availability of affordable 30 year fixed rate mortgages, the risk of riding out an ARM 's potentially volatile rate increases is too high for most borrowers to safely accommodate.
For more information on how refinancing into a 30 year fixed rate mortgage can help you add stability to your housing expenses, and potentially even help you lower your total monthly expenses, feel free to contact us at (800)515-8443 today.
If you are currently in an Option ARM or Cash Flow style mortgage which allows you to defer interest in exchange for home equity by making a low minimum payment, you may think that a 30 year fixed rate mortgage would literally break the bank. You may be surprised to know that you can actually significantly reduce your interest rate while maintaining the flexibility of the Cash Flow & Interest Only payment options, and still have a 30 Year Fixed Rate. This new program is available to all borrowers with a good history of making their mortgage payments with as little as 20% of equity in their homes, so chances are that you qualify. For more information about 30 year fixed rate mortgages with Cash Flow options can help you preserve the flexibility of your pay option mortgage while adding the security of a low fixed rate for 30 years, feel free to contact us at (800)515-8443 or via email at Fixed@RefinanceOne.net
A very popular alternative to the 30 year fixed over the past several years has been the 3 Year ARM Adjustable Rate Interest Only Mortgage (often called 3/1 or 3/6 LIBOR). 30 year fixed rate mortgages are now available with Interest Only payments available for 5, 10, 15 or even 20 years, often at equal and sometimes even lower payments than the equivalent 3 Year ARM, 5 Year ARM, or 7 Year ARM Adjustable Rate mortgage. Interest only payments no longer automatically mean adjustable rates. For more information on 30 year fixed rate Interest Only mortgages, give us a call at (800)515-8443 and we'll help you get answers to your questions. Think of it as having your cake and eating to!
Fixed Rates Can Mean Lower Payments - While the common wisdom for the past few years has been that 30 year fixed mortgages are more expensive and rigid than their ARM Adjustable rate counterparts, refinancing into a 30 year fixed mortgage doesnt always mean moving to higher payments or sacrificing flexibility. Fixed Rate mortgages have come a long way, and in many cases present an excellent option for borrowers who are in ARM mortgages to lock in a fixed rate before the payment on their ARM adjusts and skyrockets. Fixed Rate mortgages are even available as a viable option for borrowers who prefer the flexibility and minimum payment options of Option ARM mortgages, but need to refinance into the security and predictability of a fixed rate.
Even though refinancing into a fixed rate mortgage may mean slightly higher payments then a lower rate ARM you have to think logically. If you let your ARM begin to adjust the increase in payments will eventually make the ARM more expensive then the fixed.
Mortgage Interest Rates 30 Year Fixed Refinance - Mortgage interest rates on a 30 year fixed refinance are usually slightly higher than the interest rates on mortgages with shorter terms.
A 30-year fixed loan means the payments are amortized over a 30-year period.
It is always a good idea to ask your loan officer what options you have. Depending on the situation, a 30 year fixed mortgage may not be your best option. Because the interest rate will generally be slightly higher on a fixed mortgage compared to an adjustable rate mortgage, the payment will also be higher. Talk it over with your mortgage professional. He or she should lay the options out for you, and together you can decide whether a fixed rate or an adjustable rate will be your better choice.
Rates on 30 year fixed rate mortgages are however becoming increasingly competitive with ARM Adjustable Rate Mortgages, especially for borrowers with average to excellent credit.
30 Year Fixed Rate mortgages can be excellent refinancing tools for borrowers whose ARM Adjustable Rates are nearing the end of the fixed period, and are about to begin adjusting upwards, often substantially so.
30 Year Fixed loans have come a long way, some offering minimum payment options and interest only options which were once only available on exotic Option ARM mortgages, so more and more you don't have to give anything up to go with a 30 year fixed rate, and you gain security and stability. 30 year fixed rates are an option to consider, but in order to determine whether or not a 30 year fixed rate mortgage, with or without a cash flow option, is a good fit for your personal financial situation, you should consult a financial professional with specific expertise in fixed rate refinancing.
The fixed period on my ARM loan is expiring - When the two or three year period on most ARM mortgages from "subprime" type lenders expire, your interest rate and payment will very likely go up here in 2006. The method used to calculate the new interest rate and payment is specified in a document called the Adjustable Rate Rider, however most work basicly the same.
If your adjustable rate ARM mortgage is nearing the end of its fixed period, you'll be surprised to know that your current mortgage company is least likely to provide you with the best deal when you refinance into a fixed rate mortgage. Due to a lack of competition, and what generally amounts to complacency amongst the majority of borrowers, big lenders and servicing companies often make much more money the second time around, charging huge hidden fees because they believe the borrower will not notice. Smart homeowners nationwide know the value of getting a second opinion before making any decisions about refinancing their expiring ARM into a Fixed Rate mortgage. For a free, no obligation evaluation of your current situation, including a no-nonsense look at the options available to you, contact one of our seasoned financial professionals at (800)515-8443 or via email at Fixed@RefinanceOne.net
In some areas in the country were the home was purchased with a 2/28 ARM borrowers may be unable to refinance their ARM mortgage. The reason for this is that property values in some areas have fallen drastically making the house worth less they the borrower originally paid for the property.
It is very important to keep your mortgage payments up to date, particularly if they have recently adjusted. A strong mortgage history will help you qualify for the best going rates when you refinance.
Many people will refinance their home mortgage loan into either a fixed rate mortgage or into another adjustable rate mortgage before their interest rate on their ARM, adjustable rate mortgage loan, is about to make its first adjustment. Refinancing your ARM loan can save you money from a big increase in your interest rate and monthly payment when interest rates are on the rise.
If the fixed rate on your ARM loan is expiring, you could be in for a case of payment shock.
The good news is if you've had an adjustable rate mortgage for the last 2 or more years, you have probably saved thousands of dollars that you would have paid with a fixed rate mortgage.
However, now is a good time to look at refinancing to a lower rate fixed rate mortgage or intermediate ARM.
In most cases your adjustment period begins the same time your prepayment period ends. You will most likely be recieving several solicitations to refinance by mail. If you like the work your mortgage broker did when you first got the mortgage it might be best to go to them for your refinance. They have all of your records on file already, they are fimilar with you and your situation already.
You can check your loan documents to find out exactly when your loan is set to adjust. This should give you time to prepare and know when you need to look into refinancing your loan.
Some Lenders sell the information of customers whose fixed period of ARMs are expiring.
If you have misplaced your loan documents, you can sometimes look up the specific information on your Adjustable Rate Mortgage at the county courthouse. Look for the Adjustable Rate Rider, which details the terms of your adjustable rate loan (when the rate will adjust, what percentage it will adjust to, etc).
Fixed Rates, Lowest Payments - Love it or hate it, the Payment Option ARM or Pick a Pay mortgage has become one of the most popular home loans in the USA, accounting for over 40% of new loans since 2005, and is definitely the fastest growing option in high cost states like California, Florida, New York, New Jersey and Connecticut. While many people love the 1% start rates, there are a lot of people who don’t feel comfortable with the possibility of payments increasing in as little as 1 month on many of the most common programs. The common wisdom is that Option ARMs are incredible products for savvy homeowners and investors, but may be too powerful for the average homeowner to handle.
Introducing Hybrid Option ARMs
For the rest of us, an innovative class of new loans has been recently introduced for homeowners who want the security of a Fixed Rate mortgage, with the flexibility and exceptionally low payments of an Option Arm. These home loans go by many names, including Hybrid Option & Fixed Option Arms, but they have one thing in common: A fixed payment for several years. Some of these mortgages have fixed interest rates, some of them have fixed minimum payments which don’t go up, and some of them have both!
So what are the key benefits of Hybrid ARMs?
- Fixed Minimum Payments for 1, 3, 5, 7 10 or even 30 years
- Fixed Interest Rates for the Full Term on Many Programs
- Minimum Payment is typically 55% lower than a Regular Loan or better
- Increased Cash Flow, Decreased Risk Makes Housing Affordable & Secure
- Interest Only Payment Option Continues Even After Recast
- Greatly Reduces the Sticker Shock of a Fixed Mortgage
- Greatly Reduces the Payment Shock of an Adjustable Mortgage
- Greatly Reduces Negative Amortization
- Retains Flexibility of an Option ARM
Like an Option ARM, Your Payment Coupon Has 4 Options on it
1. Minimum Payment
2. Interest Only Payment
3. 15 Year Fixed Amortized Payment
4. 30 or 40 Year Amortized Payment
A Real World Example
Your Minimum Payment is generally close to half of what a regular fixed rate mortgage would cost, or otherwise would 3% or 4% lower than the fully amortized payment. Let’s take a look at a hypothetical scenario. Jane has a house in California which has been appraised for $400,000 and has a traditional fixed rate mortgage on the property of $200,000 on which she pays $1467.00 per month before taxes & insurance. If Jane were to refinance this mortgage into a Fixed Rate Option ARM, her minimum monthly payment would be about $800 dollars, about 55% of the cost she was paying previously. And both rate and minimum payment would still be fixed for 3, 5, 7, 10 or even 30 years. In fact Jane could take out $100,000 in cash out when she refinanced and she would still have a minimum payment of $1200 per month, and both rate and payment would remain fixed for 3, 5, 7, 10 or even 30 years.
But Do I Qualify?
Because of the very low effective rate of this financing and the very generous terms, these types of loans are generally available only to borrowers with credit scores of 620 or more. If you don’t know your credit score, you should call your loan officer and take a good look at your credit together. Other things to look out for are any late payments on your mortgage in the past 1 to 2 years, and of course any serious delinquencies like bankruptcies, liens or judgments on your credit report. Also, you will usually be limited to borrowing no more than 80% to 95% of the value of your home. And if you talk to your loan officer and they haven’t done a lot of Hybrid ARMs, get a new mortgage company, because there are a lot of ways they can steer you wrong simply out of ignorance. These Hybrid loans are new, powerful financial tools and are best handled by those with extensive experience with the product.
Some consumers do not feel comfortable with Option ARMS even though they do have some security in the rate being fixed for a certain amount of years. For these consumers there are traditional ARM's which you can get locked in for any number of years up through 10 years generally. Since most consumers sell or refinance every 4-5 years these types of mortgage make a lot of sense. They will provide you with the lowest payment and rate that is fixed for a certain amount of years as opposed to going with a slightly higher interest rate this is fixed for lets say 30 years. Therefore, when you are looking for the lowest payments and fixed rates, if you are not interested in a payment option ARM you can still consider other variations of ARM loans and even though they are not fixed rates for the life of the loan, they can still be fixed for long enough periods to serve and meet your needs. Consult a mortgage professional soon to find out which type of loan is right for you.
Contact me at (800)515-8443 or email me at Fixed@RefinanceOne.net for a free consultation regarding the various ARM loan programs available for you today.
Fixed Rate Minimum Payment Option Loans are an increasingly popular and lower cost alternative to Interest Only mortgages, and are often referred to as Secure Option mortgages.
Before you sign any mortgage paperwork involving a pay option ARM have your mortgage broker go over any questions you may have. You will also want to exercise fiscal control when dealing with this type of mortgage, it is not meant for you to make the minimum payment and use the extra money for a new car. If you have that mindset you will wind up in trouble in a few years.
Fixed Rate Refinance - Why should you consider a fixed rate refinance for your current ARM Adjustable Rate Mortgage? If you arent concerned with rising adjustable mortgage rates, theres a good chance you should be. Adjustable rates have increased more over the past 18 months than in the preceding 5 years combined. Rising payments on ARM mortgages are projected to account for 50% of all defaults over the next 3 years. Even if your loan is not scheduled to enter its "adjustable" period for some time, please be advised that changes in the lending industry are making it more difficult for borrowers with all types of credit to convert their adjustable rate mortgages to a fixed rate, a trend which industry experts expect to continue for the near future. It may be a long time before the fixed rate refinance option is available as broadly as it is today. The time to act is now. Take advantage of your good credit history and current market conditions to secure a fixed rate mortgage with a low monthly payment today.
For those of you experiencing "sticker shock" when shopping for fixed rate mortgages to refinance out of your current adjutable rate, it is you may wish to examine 30 year fixed loans with the following options which allow you to lock in a low rate but make a lower payment for the first 2 to 10 years of the loan:
- Deferred Interest / Cash Flow Option
- Interest Only Payment Option
- 1/1 Buydown Refinance
- 2/1 Buydown Refinance
- 3/1 Buydown Refinance
- Graduated Payment Mortgage
Many people believe they cannot afford the payments when considering refinancing their ARM mortgage into a fixed rate. While it is true that fixed rate mortgages generally have higher rates than the adjustable mortgages they are replacing, they are secure, never increasing for the life of the loan. This is in sharp contrast to most ARM loans, which can increase as much as 6% or more at the FIRST adjustment date. In many adjustable rate mortgages, your payment can even double, or worse. Don't risk your home, start looking at a fixed rate mortgage today. Even if you can't or don't need to lock in a fixed rate for 30 years, fixed rates can be locked in for 3, 5, 7, 10 or more years.
You may also want to consider a interest only mortgage refinance. An interest only mortgage carries a slightly higher rate then a traditional mortgage but because you are only paying the interest the payments are lower. You may also send in extra money to applied towards the principal balance every month if you like.
There are now 30 Year Fixed Rate mortgages which offer a "Cash Flow" minimum payment option, which allows you to defer interest up to a maximum of 125% of the loan amount. This is one of the most popular options for borrowers converting from ARM loans, because it allows them to use their fixed rate mortgage like a line of credit (except one with no closing costs and usually much lower rates), trading additional cash flow for equity in their property as needed. As many borrowers benefit more from free cash flow than from non-performing home equity, this is a very popular option and is generally safer for the average homeowner than similarly advertised products such as the so called Option ARM loans.
Fixed Rate Hybrid Mortgages - A fixed rate hybrid mortgage is a mortgage that starts with an initial period where the interest rate and monthly payment are fixed, followed by the remainder of the loan which the rate and payment may fluctuate with the market.
The types and initial fixed period vary depending on which program you choose.
Many Hybrid mortgages are schedule to become adjustable rate mortgages in 2007 and 2008. If your Hybrid mortgage is adjusting, refinancing is one of the best ways to lock in a fixed rate for another 3, 5, 7, 10 or even 30 years.
Fixed Rate vs. ARM - There are many different options available when shopping for a mortgage, but one of the most basic choices potential borrowers face is the choice between a fixed rate or an adjustable rate mortgage.
There are benefits and drawbacks to each, and you should consider these when shopping for a mortgage.
A fixed rate mortgage has the advantage that the interest rate is fixed for the life of the loan. Your payments will remain stable, regardless of changes in the real estate or interest rate markets. Over the life of your loan, the interest rate market will fluctuate, and at some point, your interest rate will probably be below the current market. The lender assumes the risk of such market fluctuations in making the fixed rate mortgage for you, and in exchange, the fixed rate mortgage typically carries a higher rate than a comparable adjustable rate mortgage.
An adjustable rate mortgage (ARM) offers a lower initial interest rate than its fixed rate counterpart. The reason for this is that making a mortgage involves a large sum of money being lent over a long period of time, and therefore carries some level of risk for the lender. If you take on an adjustable rate mortgage, you are assuming some of that risk by allowing your interest rate to change with the market. The lenders profit margin is protected over the life of the loan, and therefore they can offer you a more attractive interest rate.
Fixed Rate Mortgages are often thought of as having high monthly payments and little to no flexibility compared to their ARM Adjustable Rate Mortgage brethren. In recent years, many people have voted with their feet and refinanced into record numbers of exotic mortgages, such Option ARM mortgages, because these adjustable rate mortgages allowed them to defer interest and pocket excess cash flow. However, in today's rising interest rate environment, many borrowers who are in the original, 1 month MTA or LIBOR variety of these adjustable rate mortgages are seeing dramatic increases in their underlying interest rates. When an option ARM loan's rate increases (the actual rate, not the minimum payment rate), the negative amortization caused when you defer interest each month increases, and your loan will "recast" or reset to a full payment, much more quickly. At today's rates, the typical option ARM loan taken out in 2004 or 2005 will recast in the next several months, often with no real notice to you. Don't get caught with your pants down on this, the payment can more than triple in some cases. Before your Option ARM loan recasts, consider locking in a low fixed rate loan with a cash flow option, which will minimize the negative effects of the interest you choose to defer and prevent any nasty surprises in the future.
Most homeowner sell or refinance their homes within 5 years, therefore obtaining a fixed rate may not always be the best option. When you are looking to buy a new home or refinance your existing mortgage sit down with your mortgage professional to find out all of the advantages and disadvantages to both a fixed rate home loan and an adjustable rate home loan for your individual situation. Adjustable rate mortgages, also referred to as ARM's, can be highly advantageous when used in the right situations. Remember to, that with an adjustable rate mortgage your rate can also go down depending on the market conditions at the time of the adjustment periods.
Both fixed rate and ARM loans can be "interest only". Typically, the interest-only period on a 30-year fixed rate loan lasts 5 years. On adjustable-rate mortgages, the interest-only period typically coincides with the fixed-rate period (if the loan is a 2-year ARM, the interest-only period is usually 2 years as well).
Mortgage loans with long fixed rate periods usually have higher interest rates. However, in certain interest climates, the short term rate is at the same level as long term rates. In such economic conditions, there is little to no difference in interest rates between an Adjustable Rate Mortgage (ARM) and a Fixed Rate Mortgage )FRM).
Fixed Option Arm - Most people have heard of the Option Arm or Pick A Pay loan. A newer product is now out that provides the flexibility of payment options and also the security of the margin and index being fixed for a period of time.
The availability of 30 year fixed rate loans with minimum payment options allows even the most conservative long term homeowner to experience the added flexibility afforded by minimum payments
While the exact terms will vary by lender, the interest rate on a fixed or hybrid option ARM will remain constant for a set number of years. In many cases between 3 and 5 years. After the initial fixed rate period the interest rate will become variable, with the length of time between adjustments varying by lender.
A fixed option arm loan will keep the payment the same on all payments. This way the borrower will not have to worry about their payments fluctuating each month. The rates and payments will typically be higher than adjustable option arm loans.
Many investors prefer a hybrid option arm because the payments are fixed for a certain amount of time, and the low payments mean increase cash flow. A savvy investor can plan his investments with enough accuracy to never have to pay a higher payment by flipping the property before the fixed rate period expires.
What Other Options Besides A 30 Year Fixed? - Many first time homebuyers are under the assumption that the only and best program out there is a 30 year fixed rate mortgage.
In some case a long term 30 year mortgage will make sense. However by opting for a shorter term arm, they may be able to save thousands on the interest of the loan.
Mortgages are no different than many of the other facets of daily life. Feel free to ask questions! That's what a mortgage professional is there for. "What are my options?" is a fantastic question to ask. 30 year fixed rates are looked at as the number one option, but who knows? Perhaps a shorter term fixed rate fits your needs. Maybe an option arm with different payment choices each month makes sense for you. There are no stupid questions when it comes to the biggest investment of your life.
Borrowers who can afford higher payments and want to pay off their mortgage faster should consider a 15 year fixed mortgage. Borrowers who intend to keep the mortgage for a shorter time frame and want a lower interest rate should consider a hybrid adjustable rate mortgage in which the interest rate is fixed for a shorter period (3 years, 5 years, 7 years, 10 years). Borrowers who want lower monthly payments may consider an interest only loan, where only the interest accrued each month is paid. Option ARMs give borrowers the lowest monthly payments, but may result in negative amortization, where the loan balance grows each month.
One option to a 30 year fixed mortgage is the 15 year fixed. If you are able to make higher payments each month you could pay off your mortgage in half the time. One alternative to this would be to put the extra money into an interest bearing account. Within 15 years you would have enough money to payoff the 30 year with an additional $25,000 from added tax savings.
Very often, when a homeowner is not plannig on staying in their home for more than a few years, it makes more sense to take an ARM or Adjustable Rate Mortgage.
There are many different ARM programs, the most common of which are the 2 year, 3 year, and 5 year ARMS.
The rate is not adjustable from day one, it is fixed for a pre-determined period (2 years for the 2 year ARM, 3 for the 3 year etc...)
The rates on these ARMS are often lower than they would be on the fixed rate, and it could mean thousands of dollars saved by choosing to go with the "ARM".
Contact Refinance One at (800)515-8443 for more information on what loan program will best fit you and your financial needs.
One of the most popular options for homeowners across the country is the minimum payment mortgage, available in both fixed and adjustable varieties. By allowing you to pay even less than the interest due each month, you can borrow $500,000 for as little as $1,264.00 per month, and you can pick and choose when and how much you pay to cover total interest or make payments directly to principal.
Many companies are now offering 40 and 50 year mortgages. These mortgages will have slightly higher rates in most cases, but will stretch out payments to ease the monthly costs. However, since the loan is over a longer period of time, the interest you will end up paying is significantly higher, so it is important to weigh the overall value of having a lower monthly payment if the cost is having to pay more dollars over time.
Another very popular feature is the "Interest Only" payment option on the traditional 30-year or 15-year fixed rate mortgage. A mortgage loan with the interest-only feature requires monthly payment of only the interest accrued for the prior month.
Fixed Rate Option Payment Mortgages - The newest twist to the option payment mortgage are loan products that offer fixed rates of interest in addition to the low payment options that are also fixed for various periods. This eliminates some of the risk of the more traditional option payment ARM loan, especially in rising interest rate environments.
This program is often referred to as a Hybrid or Secure Option Arm. This does provide the flexability of the different payment options as well as some stability knowing that your rate will be locked for a period of time.
With a Fixed Rate Option Payment Mortgage, you would have an option to choose 1 of 3 different payment amounts during the initial period. One, you could make a fully amortized payment, paying both principal and interest. Two, you could pay the interest only and pay no principal. Or three, you could make a minimum payment based upon a lower interest rate. If you choose the third option, the difference between an interest only payment and your minimum payment would be added onto your loan.
One feature of a fixed rate option payment loan is that the borrower can calculate exactly how much interest will be deferred during the intial option payment period. Because of this, in a sense this type of loan becomes really no different than a second mortgage or cash out refinance where the borrower knows precisely how much their principal balance is being increased.
A fixed rate option loan can be a tool to manage your finances. There are times when a person's cash flow may have it's highs and lows. A fixed rate option loan will allow you to determine how to plan for those times.
Financially savvy home buyers often prefer Fixed Rate Option Payment mortgage over conventional financing. They use it to maximize leverage, increase purchasing power, and lower monthly mortgage payments.
There are even 30 year fixed rate mortgages with rates in the 6% to 7% range with minimum payment options as low as 1.95%.
Should I refinance my ARM to a fixed rate - There are benefits and negatives to both a fixed rate and an ARM mortgage, but for the borrower who is thinking about refinancing their ARM into a fixed rate, there are many things to consider. By Refinancing your ARM to a fixed-rate mortgage you will avoid the payment increase when your ARM interest rate begins to adjust. You will also lock into a more stable payment for the term of your mortgage.
Rates are rising rapidly for short term, adjustable rate mortgages. If your loan is adjusting, the payments could increase by up to 50% or more. You may be able to substantially reduce your adjusted payment by locking in a fixed rate today. Some Fixed Rate mortgages even have payment options as low as 1.95%
If you are currently in a sub-prime 2/28 ARM you may want to consider refinancing to a fixed rate. If property values are starting to drop in your area It is even more critical that you refinance out of your ARM in the near future.
Many people take adjustable rate mortgages because credit challenges prevented them from having a low fixed rate. If you have made all of your mortgage payments on time and your credit score has increased you may be able to refinance into a Fixed Rate Mortgage without increasing your payments.
If affordability is a determining factor in deciding your mortgage structure, ask your loan officer or mortgage broker if structuring your loan as an Adjustable Rate will give you more flexibility.
When deciding to refinance your adjustable rate mortgage (ARM) into a fixed rate mortgage, you first need to decide how long you think you will be in your home. If you are in the second year of a 5 year ARM, and only see yourself in the house for another 2-3 years, then you may want to wait until it is absolutely necessary to make the change. Your mortgage broker can advise you as to what the market may do, but they will not know what is in store for years to come. Concurrently they will also not know the number of years you will be in the home, along with any changes in your life that may require you to move.
If you are in a situation in which you MUST refinance, pay close attention to what is going on in the market. Make sure you are dealing with a savvy and honest loan officer or Mortgage Broker. Sometimes the yield curve becomes inverted, and you can actually refinance into a 30 year fixed mortgage, at a lower or equal rate than a 3 or 5 year ARM!
You need to find what your break even point is for your current loan. Have you already broken even? If not how much more will it cost you to continue in your current loan? Have an honest discussion with a broker to decide what the best course of action is.
In an economic climate where short term rates and long term rates are about the same, it may be better to refinance adjustable rate mortgages into fixed rate loans. Home buyers are willing to share the risks of an adjustable rate mortgage when the adjustable rate is significantly lower than fixed rate mortgages. If such advantage no longer exists, fixed rate mortgage is often a preferred choice.
40 year fixed versus 30 year fixed mortgage loan - A 40 year fixed mortgage is a just like any typical conventional mortgage loan except that you pay it off over 40 years instead of the common 15 or 30 year amortization found in the past. The additional 10 years of amortization lowers your overall payment each month.
If you are looking for the lowest possible mortgage payment, while paying down your principal, then the 40 year fixed rate mortgage may be the way to go. Also, if you are attempting to become qualified for a mortgage but your debt to income ratio is a little too high, then you may need to use the 40 year fixed mortgage to get you into the home. The lower payments may be just enough to help you qualify for your new mortgage.
Even if you take out a 40 year mortgage you still have the option to pay a little extra each month, or whenever you have extra money to pay down the mortgage quicker. Paying just a little extra per month can help pay down the mortgage much faster than you otherwise would because the entire excess payment is applied against your principal.
A 40 year mortgage is a nice option when you are looking for a low monthly payment and a little more flexibility is needed. Ask to see a breakdown of what the total costs and payments of a 30 year mortgage would be versus a 40 year mortgage to make sure that there is enough of a difference in your monthly payment to make it make sense to you. Sometimes, there may only be a very slight difference in the payments and it may not make sense to finance your home loan for 10 more years for very little to no savings.
Today there are new mortgage programs that combine the low payment of an interest only loan with the security of a fixed interest rate. One popular option is 10/30 Fixed Rate Interest Only mortgage. This particular forty year loan offers a 10 year interest only period which means a lower payment, but no reduction of principle. After the 10 year interest only period the loan becomes your standard 30 year fixed mortgage. This may be useful if you plan on staying in your home a while and anticipate pay raises to cover the higher fully amortized payment.
A variation of the 40-Year Fixed Rate mortgage, the 40/30, is being offered by many banks. The 40/30 is a home loan amortized to be paid off in 40 years, but is due in 30 years. In other words, even though payment is calculated as a 40 year loan, at the end of the 30th year, the entire loan balance becomes due. The "40 Due in 30" is ideal for younger home buyers who just started their careers and have no short term plan to move.
Fixed Rate Second Mortgages - A fixed rate second mortgage is a second lien on your property that is obtained by utilizing the equity available in your home. With a fixed rate 2nd mortgage you will receive the entire loan amount up front and make payments for the specific term of the loan (such as 10 years, 15 years, etc...). The rate on these loan types is fixed.
A fixed rate second mortgage is different from a home equity line of credit because with a home equity line of credit you have a revolving credit limit and with the fixed 2nd you don't. A revolving credit limit is basically the same as a credit card: you have a maximum credit limit and as you pay it down the money becomes available again. With a fixed rate 2nd mortgage you do not have the money available to you again after you pay the loan down or pay the loan off.
The mortgage interest is generally deductible on a fixed rate second mortgage just as it is on a 1st mortgage and also a home equity line of credit. A fixed rate second mortgage is a good idea for people trying to consolidate debt and for people who are looking to do a home improvement loan.
A fixed rate second mortgage is utilized very often when someone buys a house with little or no down payment. A borrower may do an 80/20 loan or an 80/15 loan. The 80/20 is a 80% first mortgage and a 20% 2nd mortgage and an 80/15 loan is a 80% first mortgage and a 15% second motgage with the other 5% coming in the form of a down payment from the borrower. The second mortgage in these 2 transactions listed above can also be an equity line of credit but most equity lines are adjustable rates and many borrowers like to have the luxury of a fixed rate and knowing that their payment will not increase and they will have the loan paid off in x amount of years.
You may be entitled to a lower rate if you choose a fixed rate second mortgage with a balloon feature. The loan may be a fixed rate and amortized over 30 years but the note will be due in 5, 10 or 15 years.
Although borrowers always enjoy the comfort and security of a fixed rate it is important to remember than second mortgages are usually not kept for the long term. Because they are normally at a substantially higher rate than a first mortgage, most homeowners end up refinancing them into their first mortgage.
Where the short term rate is in a rising environment, some people prefer the security Fixed Rate Seconds offer over the risky nature of adjustable rates of Home Equity Line of Credit (HELOC). Take for example in late 2005 and early 2006, when the Prime Rate (a short term rate index which most HELOC’s are based on) was only about 0.5% lower than the interest rates of Fixed Rate Seconds. With such a small difference between the Fixed and the Prime, most homeowners opt for the peace of mind that Fixed Seconds offer.
This post has been filed under : fixed rate, second mortgages, equity
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