Financing Options

There are many types of financing optional available to homebuyers. Here are some of the most common programs available:

Fixed Rate Mortgage
The interest rate on a fixed rate mortgage stays the same throughout the term of the loan, usually 15 or 30 years. This means the principal interest portion of your payment remains the same. Payments are stable but initial rates tend to be higher than adjustable rate loans and often cannot be assumed by a subsequent buyer.

Balloon Mortgage
A balloon mortgage is a loan that must be paid off after a certain period. The advantage they offer is an interest rate that is lower than a mortgage that is made for 30 years.

Adjustable Rate Mortgage (ARM)
This interest rate is linked to a financial index, such as a Treasury Security or a cost of funds, so your monthly payments can vary up or down over the life of the loan, usually 25 to 30 years. Interest rates can change monthly, annually or every 3 or 5 years. Some ARM's have a cap on the interest rate increase to protect the borrower.

Other terms relating to Adjustable Rate Mortgages:

• Adjustment period: The length of time between interest rate changes. An example would be one year ARM - the interest rate changes annually
• CAP: The limit on how much an interest rate or monthly payment can change at each adjustment or over the life of the loan.
• Conversion Clause: A provision in some loans that enables you to change an ARM to a fixed rate loan, usually after the first adjustment period. This may require additional fees.
• Index: A measure of interest rate changes used to determines changes in the loan's interest rate over the term of the loan.
• Margin: The number of percentage points a lender adds to the index rate to calculate the ARM's interest rate at each adjustment.

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