Thirty-Year Fixed Rate Mortgage
The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then adjustable-rate loans are usually cheaper. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.
Fifteen-Year Fixed Rate Mortgage
This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate—and you’ll own your home twice as fast. The disadvantage is that with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years.
This means the loan is fixed for an initial period of time (usually 3-10 years) and then adjusts on an annual basis. These are also called 3/1 ARM, 5/1 ARM, 7/1 ARM and 10/1 ARM. This type of loan can offer a lower upfront rate and payment and may be a good choice for borrowers who will be moving, refinancing, or paying off the loan before the rate adjusts.
Adjustable Rate Mortgages (ARM)
When it comes to ARMs there’s a basic rule to remember…the longer you ask the lender to charge you a specific rate, the higher the interest rate.
This loan has a rate that is recalculated once a year.