The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. Fixed rate loans offer greater security and less vulnerability as you always know your monthly payment.
This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate—and you’ll own your home twice as fast and pay it down faster. The disadvantage is that, with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years. (One extra payment per year can lower your loan payoff from 30 years to approximately 23 years.) This approach is often safer than committing to a higher monthly payment, since the difference in interest rates isn’t that great. Elite Financial also offers fixed rates from 7-29 years, which are especially helpful when you refinance and don’t want to recast the loan to a longer period of time.
When it comes to ARMs, the basic rule is the longer you ask the lender to charge you a specific rate, the more expensive the loan. Since the rate changes, the loan can be more of a risk. An Annual ARM has a rate that is recalculated once a year. To ensure you understand how all ARMs work, review your options with an Elite Financial mortgage professional.
Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM)
These ARMS—also called 3/1, 5/1, 7/1 or 10/1—can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a period of time. For example, a “5/1 loan” has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25 years. It’s a good choice for people who expect to move (or refinance) before or shortly after the adjustment occurs.
The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates to help them qualify. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term.