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Types of Loans


Thirty-Year Fixed Rate Mortgage
A traditional 30-year fixed-rate mortgage is fully amortized over a 30-year period has a constant interest rate and monthly payments for the life of the loan. This loan may be a good choice for homeowners planning to stay in their home seven years or longer. If a homeowner plans to move within seven years, then adjustable-rate loans (which typically offer a lower interest rate) may be an attractive alternative depending on current market conditions and other homeowner considerations.
Twenty-Five, Twenty, Fifteen, Ten-Year Fixed Rate Mortgages
A 25, 20, 15, or 10-year fixed-rate mortgage is fully amortized over a 25, 20, 15, or 10-year period respectively and has a constant interest rate and monthly payments for the life of the loan. It offers the advantages of the 30-year loan plus typically has a lower interest rate. A possible disadvantage is that the homeowner commits to a higher monthly payment. Many borrowers (who prefer flexibility over a slightly lower interest rate) opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 25, 20, 15, or 10 years.
Interest-Only Mortgage
An interest-only mortgage typically offers interest-only payments for a specific period of time followed by fully-amortizing payments for the remainder of the loan term. Interest-only features can generally be available with fixed-rate mortgages and adjustable rate mortgages.
Adjustable Rate Mortgages (ARM)
An ARM is typically fully amortized over a 30-year period and the interest rate adjusts periodically (i.e. monthly, semi-annually, annually, etc.). A basic rule to remember is the longer a lender guarantees a specific interest rate, the higher the rate will be. A homeowner’s time horizon for keeping a property is a very important consideration in determining whether or not an adjustable rate mortgage is a prudent mortgage option for that homeowner.
Annual ARM
An annual ARM (or one-year adjustable rate mortgage as it is also called) offers an interest rate that is recalculated once a year.
Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
A hybrid ARM is an adjustable rate mortgage with an initial fixed rate period of typically for 3, 5, 7 or 10 years. After the initial fixed-rate period, the interest rate then typically adjusts annually. This mortgage is called a “hybrid” ARM because it typically blends the benefit of a fixed-rate mortgage (i.e. several years of a fixed rate) together with the benefit of an ARM (i.e. lower interest rates than fixed-rate mortgages). For example, a 5/1 ARM has a fixed rate and monthly payment for the first five years and then adjusts annually thereafter for the remaining 25 years. Hybrid ARMs may be an attractive option for homeowners who expect to move (or refinance) before the adjustment occurs.
2/1 Buy Down Mortgage
A 2/1 Buy-Down Mortgage temporarily provides a borrower with a below-market rate. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term (if the loan is a fixed rate mortgage).
Bay Mortgage, LLC
One Columbus Center, Suite 600, Virginia Beach, VA  23462
Office:  (757) 410-9963
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