- These are some of my favorite loans for borrowers. The reason is, most homeowners will not be in their current loan for a certain number of years. Some of you know approximately how many years that might be. If this is the case, here is what is likely to happen. In a typical mortgage interest market, a 3 year fixed rate is lower than a 5 year which, is lower than a 7 or 10 year etc. This is not always the case and that’s why you will depend on me to guide you into which fixed rate time period will work best for you. Some of the questions your need to ask yourself are “Will I be selling my current home in the near future to further my career?” If the answer is yes, then you certainly don’t need to pay the higher interest rate of a 30 year fixed mortgage. “Will my children have moved out of the house in the near future?” If so, possibly you would want to downsize to a smaller home shortly after they leave. Again, depending on how long that might be, then, if the current interest rate market is normal, I would guide you to the lowest fixed rate for that time period. These loans will roll over to an adjustable rate at the end of their fixed time period, so if you have miscalculated by a year or two, it won’t make that big a difference in your payment. So make that call today and we can plan out the best fixed rate for your future financial needs!
- A combination of fixed rate and adjustable rate loans:
- Fixed-Period ARMs
- Borrows often lock into 3 to 10 years of fixed rate payments before the initial interest rate change. At the end of the fixed period, the interest rate adjusts annually. Fixed-period ARMs are typically tied to the one-year Treasury securities index: 3/1, 5/1, 7/1 and 10/1.ARMs with an initial fixed period beside of lifetime and adjustment caps usually have also first adjustment cap. It limits the interest rate you will pay the first time your rate is adjusted. First adjustment caps vary with type of loan program.
The advantage of these loans is that the interest rate is lower than for a 30-year fixed (the lender is not locked in for as long so their risk is lower and they can charge less) but you still get the advantage of a fixed rate for a period of time.
- Balloon Loan
- Balloon Loans offer a fixed rate for a specified time period, typically 5 or 7 years, and then adjust to the current market rate. After the adjustment the mortgage stays at the new fixed rate for the remainder of the loan period.
- Graduated Payment ARMs
- Graduated payment mortgages initially offer lower payments at the start of the loan that gradually increase at preset times. Lower initial payments allow borrowers to qualify for a larger loan amount. Loan amounts negatively amortize during the early years of the loan then pay off the principal at an accelerated rate through the later years.GPM payment plans will vary by rate of payment increases and number of years over which payments will increase. The greater the rate of increase, or the longer the period of increase — the lower the initial mortgage payments.
- Convertible ARMs
- If an adjustable rate mortgage is convertible, the borrower may convert to a fixed rate mortgage, when interest rates begin to rise, without refinancing. The new rate is established at the current market rate for fixed-rate mortgages. The terms of convertibility vary among lenders. Typically it involves a nominal fee and minimal paperwork. The downside is that the conversion interest rate is often a little higher than the market rate at the time of conversion.A fixed rate loan with a rate reduction option allows borrowers, under predetermined conditions, to adjust to the current market rate for a nominal fee. The discount points or interest rates are often slightly higher for convertible loans.
- Buydown Mortgage
- A temporary buydown initially offers a lower interest rate and lower monthly payments. In order to reduce monthly payments during the first years, borrowers make an initial lump sum payment or agree to a higher interest rate. Over the years, the interest rate gradually increases until it peaks at a fixed rate. Borrowers who chose this loan often expect a significant increase in their income.Call Michael Mitchell, 530-406-2200 or 707-259-1117 or 707-337-5970 mobile.
