Low Mortgage Offers, Buy Your Dream Home Now
Low mortgage rates are making home ownership more affordable by the historical standards of 2007 -2012, making it an opportune time to buy a home. With rent becoming increasingly more expensive, the market is definitely turning into a sellers’ paradise.
Home Loan options are varied and offer many different pricing and interest rate structures. Depending on how long you intend to stay in the home you are purchasing, and your affordability can determine which mortgage plan suits you. This is a brief overview of Adjustable and Fixed Rate Mortgage options available and the creativity and availability of plans you can shop around for.
Option ARM Loans
This mortgage plan gives you four options every month on how much and what you would like to pay. Once the initial payment has been made; the lender sends you a letter with four choices of payments, one of which must be chosen for that particular month.(1) minimum payment (2) 30 year amortized or (3) 15 year amortized and (4) interest only payment.
Fixed-period ARMs offer three to ten years of fixed payments before the first interest rate changes. The end of the fixed period then signifies the annual adjustments of the interest rate. Fixed-period ARMs are usually connected to the one-year Treasury securities index. ARMs with an initial fixed period may also have first adjustment caps. This limits the first interest rate you will pay when the rate is adjusted. These are all dependant on the type of loan program you have secured. The advantages of these types of loans is that the interest rate is lower than it would be for a 30-year fixed loan.
Adjustable Rate Mortgage is a home loan whose interest rate, and monthly payments, fluctuate over the period of the loan. Adjustments are made over a period of time based on changes in a defined index. The index’s vary per loan plan and is established at the time of the loan application. These pre-determined margins remain fixed for the loan term and are not impacted by the financial markets and interest rate fluctuations. Lenders use a various margins depending upon the loan program on offer and the subsequent adjustment periods.
ARMs generally have interest rate caps protecting you from huge monthly payment increases. Lifetime caps limit the overall interest rate increase for the duration of the loan. Periodic adjustment caps limit the increase of the interest rate at any given one time.
Mortgage agreements inform you of the exact index to be used and if it is the weekly or monthly value which apply, the lead time of your index, the margin, and the caps.
Combined (Hybrid) Loans
Hybrid loans are a mixture of Fixed and Adjustable Rate Mortgage loans commonly available in four different structures. You need to investigate these and compile the most suitable plan for your pocket.
ARMs have options to convert to a fixed-rate mortgage at designated times in the life time of the loan, this usually occurs on the adjustment date within the first five years, the best time to take this option is if you see interest rates are starting to rise. The new rate is then established at whatever the current market rate is at that time for fixed-rate mortgages. Converting this mortgage is either done for free or a nominal fee and entails very little paperwork. The disadvantage is that the conversion interest rate could be higher than the current market rate.
Another convertible mortgage is a fixed rate loan with an interest rate reduction option. If rates dropped since closing your mortgage agreement, you may under certain conditions, adjust your mortgage to market rates. A small fee may be incurred. Again the interest rate or discount points may be slightly higher.
Negatively Amortizing Loans
Loans that have payment caps but no periodic interest rate cap, that loan becomes negatively amortized meaning; should interest rates increase that the monthly mortgage payment does not cover due interest the unpaid interest is added to the loan balance which means the loan balance increases. There is however always the other two options to pay the minimum monthly payment, or the fully amortized amount due.
Negatively amortized loans are advantageous as you can control cash flow, take advantage of low interest rates and pay the money back which was borrowed today at a depreciated value in a few years time.
ARMs offer initial lower interest rates than the fully indexed rate during the initial period this could be one month or a year or more. ARMs are available with 15-30 or 40-year terms. Adjustable rate mortgages generally have a lower initial interest rate than fixed rate loans.
Two-Step mortgages offer fixed rates usually for 5 or 7 years, then the interest rate changes to the current market rates. After this initial adjustment the mortgage then maintains a new fixed rate for the remaining 23 or 25 years of the initial mortgage agreement.