Mortgage Loan Programs

Mortgage loan programs are either fixed rate or adjustable rate!  And a hybrid loan program is simply a combination of the two.  Let's look at the difference between these loan programs. 

Which program should you choose - a fixed rate, an adjustable rate or a hybrid loan?


Fixed Rate Loans

With a fixed-rate loan, your monthly payment of principal and interest never change for the life of your loan. Your property taxes may go up, your homeowner's insurance premium may go up, but generally with a fixed-rate loan your payment will be very stable.

Fixed-rate loans can come in 30-year, 20-year, 15-year or even 10-year lengths of time. Some fixed-rate mortgages are called "biweekly" mortgages and shorten the life of your loan. You pay every two weeks, a total of 26 payments a year -- which adds up to "extra" monthly payments every year.

During the early amortization period of a fixed-rate loan, a large percentage of your monthly payment goes toward interest, and a much smaller part toward principal. That gradually reverses itself as the loan ages.

You might choose a fixed-rate loan if you want to lock in a low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can give you better monthly payment stability.


Adjustable Rate Loans

Adjustable Rate Mortgages -- ARMs, as we called them above -- can come with many different variables. Generally, ARMs determine what you must pay based on an outside index.  This index could be the 6-month Certificate of Deposit (CD) rate, the one-year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or something else. They may adjust every six months or just once a year.

Most ARM programs have a "cap" that protects you from your monthly payment going up too much at any one time. There may be a cap on how much your interest rate can go up in one period -- say, no more than two percent per year.  You may have a "payment cap," that instead of capping the interest rate directly caps the amount your monthly payment can go up in one period.  In addition, almost all ARM programs have a "lifetime cap" -- your interest rate can never exceed that cap amount, no matter what.

ARMs often have their lowest, most attractive rates at the beginning of the loan, and they can guarantee that rate for anywhere from a month to ten years.  ARM loans are often best for people who anticipate moving - within three to five years.  Then when the rate goes up they have sold their home and are not affected by the higher interest rates.

You might also choose an ARM to take advantage of a lower introductory rate if you are planning on moving, if you are planning on refinancing, or if you are simply planning to absorb the higher rate after the introductory rate goes up.  With ARMs, you do risk your rate going up, but you also take advantage of rates when they are down.  ARMs are certainly more risky than fixed rate loans. 


Hybrid Loans

Today homebuyers are in a unique position to combine the benefits of a fixed rate mortgage with the savings opportunities of an adjustable rate mortgage. With a hybrid loan (also called a fixed-period ARM or hybrid ARM) you may get the best of both worlds.

A hybrid loan gives you a fixed rate term, usually three, five, seven or ten years, with adjustable rates thereafter. These loans are typically expressed as a 3/1, 5/1, 7/1 or 10/1 ARM. The first number represents the number of years the rates are fixed. The second number indicates the adjustment interval (how often the interest rate will change). For a 7/1 loan, the fixed period is seven years with annual interest rate adjustments thereafter.

The advantage of a hybrid loan is that it gives you a lower fixed rate mortgage than you’ll typically receive with a 30 year mortgage. This is often an attractive loan choice for borrowers who expect to be selling their home within the first 10 years. You’ll get the advantage of a lower fixed rate while you’re living in the home. And if your plans remain steady, the adjustable rate won't be due until after you plan to move.

Hybrid loans are also an attractive loan choice for borrowers who want an ARM, but feel the need for added interest rate protection during their first years in the home.

Whether you plan to move within 10 years or you like the added rate protection a hybrid loan affords, I can help you find the best loan program that meets your specific need.  Contact me for more information! hybrid ARM) you may get the best of both worlds.

Communities currently served in the state of Georgia include the following: Albany, Atlanta, Bainbridge, Cairo, Camilla, Thomasville, Valdosta, Moultrie, Macon, Jonesboro, Duluth, Marietta, Savannah, Norcross, Decatur, Sandy Springs, College Park, Roswell, Smyrna, and Stone Mountain.

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