Fixed Rate Mortgages
The traditional fixed rate mortgage is one of the most common type of loan programs, where monthly principal and interest payments never change during the life of the loan.
Fixed rate mortgages are available in terms ranging from 10 to 30 years and can be paid off at any time without penalty. This type of mortgage is structured, or “amortized” so that it will be completely paid off by the end of the loan term.
Adjustable Rate Mortgages
Adjustable Rate Mortgages (ARM)’s are loans whose interest rate can vary during the loan’s term. These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions. The initial rate on an ARM is lower than on a fixed rate mortgage which allows you to afford and hence purchase a more expensive home.
Adjustable rate mortgages are usually amortized over a period of 30 years with the initial rate being fixed for a shorter period such as 5 or 7 years.