Know your mortgage options

September 3, 2019


When it comes to buying a home, you may think that your only option is a 30-year, fixed rate mortgage because well, that’s probably what your parents did. But there are plenty of options out there. While there are more than a dozen home mortgage options to choose from, most mortgage loans fit into one of three interest rate categories: fixed, adjustable or a combination of the two, but there are a few additional products to be aware of.

Fixed Rate Mortgage

A fixed rate mortgage means the interest rate and your payment (with the exception of taxes and escrow which can vary over the years) stay the same for the life of your loan — this mortgage type is undoubtedly the most popular option. Typically, the term of a fixed rate loan ranges from 15 to 30 years with the shorter terms offering the lower interest rates.

Adjustable-rate Mortgage (ARMs)

On the opposing end — an adjustable rate mortgage means the interest rate and monthly payment will likely vary throughout the life of the loan. Typically, the rate on an ARM will change every year after an initial period of fixed interest. So, why would anyone want that? Well, if you plan on staying in your home for a shorter period and interest rates have been trending low, this option can be of huge advantage. If interest rates rise, however, ARMs can result in alarmingly sky-high payments.

Hybrid Options

A hybrid ARM loan brings both fixed rate mortgages and adjustable rate mortgages together. This mortgage option is usually indicated by the fraction in its name e.g., 3/1 ARM, 5/1 ATM. The fraction signifies the year term that starts off with a fixed interest rate period, before switching over to an adjustable rate. For instance, the 5/1 ARM loan carries a fixed rate of interest for the first five years, after which it begins to adjust annually.

Government-Insured Loans and Programs

These loans are exactly what they sound like: loans insured by the government. Popular government-insured mortgages are FHA and VA loans — backed by the Federal Housing Administration and United States Department of Veterans Affairs respectively. They are typically easier to qualify for, with lower down payment and credit score requirements, making them a great solution for those that can’t qualify for a conventional loan.

Find a Trusted Lender

Finding the right mortgage starts with finding a lender that is willing to take the time to ask you the right questions. Never settle for less than what you deserve: personalized service. At Bank Iowa, our mortgage loan officers take the time to help you select the home loan and terms that best fit your lifestyle and budget.