Buyers & Sellers

Mortgage Options

Fixed-Rate Mortgage (FRM)
This is the standard mortgage model. Its primary attraction is that the interest rate and the amount of payment remain fixed for the life of the loan, typically either 15 or 30 years. However, if rates fall, the holder cannot benefit from the new, lower rate except by refinancing.

Adjustable-Rate Mortgage (ARM)
With this kind of mortgage, the interest rate you pay rises and falls along with other rates charged throughout the economy. As the borrower, you assume the risk of rising rates, and you stand to benefit should rates fall. Without limits, or “caps,” you have no way to predict how much your rate (thus monthly payments) will be.

Convertible Option
FRM and ARM represent the primary options available to home buyers today. The convertible mortgage represents something of a compromise between the two. It is designed for those who want the advantages of the ARM, but also want to limit the risk of rising rates.

With this option, the buyer starts out with an ARM, but has the option of converting to an FRM at specified points during the loan term. You may want to ask the lender these questions: When can you convert? How often can you consider the option? Are there any up-front fees involved? Will you have to pay more for an ARM with the conversion feature than for an ARM without it? Are there additional fees due if and when you decide to convert? Find out the lender's conversion rate.

Graduated Payment Mortgage (GPM)
A fixed-rate GPM starts out with low payments, usually below that of a fixed-rate and possibly below that of an ARM, but rises gradually (usually over 5–10 years), then levels off for the remaining years of the loan.

Growing-Equity Mortgage (GEM)
This option is designed for borrowers who want to pay off their mortgage as soon as possible. While the interest rate remains fixed, the amount of the monthly payment increases according to a prearranged schedule, with the higher payments going to reduce the principal balance. This mortgage can be appealing to someone who is expecting regular income growth and wants to build equity quickly.

15-Year Mortgage
Like the GEM, the 15-year mortgage enables borrowers to repay their loan more quickly, which means they build equity faster and pay less interest over the life of the mortgage.

Biweekly Mortgage
Borrowers who want to repay their loans ahead of schedule may be able to choose this option and make one-half payment every two weeks (13 full payments per year), instead of one full payment every month (12 full payments per year).

Federal Housing Administration Insured Loans (FHA)
The FHA, also known as the Federal Housing Administration, operates under the control of the Department of Housing and Urban Development (HUD) and has the primary responsibility for administering the government home loan insurance program. This program allows buyers who might otherwise not qualify for a home loan to obtain one because FHA removes the risk from the lender.

What is an FHA Loan?
In 1937, under an act of Congress, the Federal Housing Administration was established to provide American families with a unique opportunity to become homeowners. Formerly, a home buyer's options were limited only to short-term loans ranging from one to five years in term. Borrowers had to put as much as 40–50 percent down on the property and pay off the entire loan balance by the end of the term. FHA revolutionized the mortgage industry at the time by offering the 30-year mortgage and made the possibility of home ownership available to Americans nationwide. Throughout the years, a variety of programs have spawned from this revolution to make that American dream of home ownership easier, more affordable and attainable to Americans.

The Federal Housing Administration has insured over 35 million home mortgages and 47,205 multifamily project mortgages since 1934. Currently, FHA has 4.8 million insured single-family mortgages and 13,000 insured multifamily projects in its portfolio. To be more informed about your choices, visit http://portal.hud.gov

Veterans Administration (VA) Guaranteed Loans

VA loans have most of the advantages of FHA loans, and then some, but they also have eligibility restrictions. They are available only to veterans of the armed services, those currently in the service and their spouses. VA loans are typically 0.5 percent or more below market rates, and they can be obtained with no money down.

Your agent will help you understand and choose the type of lender that best fits your financial needs.