What are ARM, fixed rate mortgage and jumbo?

2007-10-22T18:52:00Z

ARM is an adjustable-rate mortgage that has an initial (fixed) interest rate for the first period of time and thereafter adjusts each year. Each annual rate adjustment is based on another rate - often the yield on a Treasury note.

Fixed rate mortgage is a loan that has an interest rate that stays the same for the whole term of loan. The principal amount is reduced, slowly at first, and then at an accelerating pace, over the life of the loan.

Jumbo mortgage is a home loan that exceeds the limits set by Fannie Mae and Freddie Mac (the 2006 limit is $417,000; $625,500 in Alaska, Hawaii and the U.S. Virgin Islands). Jumbo mortgages generally have a slightly higher interest rate than smaller (sometimes called "conventional" or "conforming") mortgages.

Here are some examples:
1-year ARM is a 30-year loan in which the rate (and therefore your monthly payment) changes every 12 months
3-year ARM is a 30-year loan in which the rate (and therefore your monthly payment) changes every 36 months
3/1 ARM has an initial interest rate for the first three years and thereafter adjusts each year
5/1 ARM similarly has a fixed interest rate for the first five years and thereafter adjusts yearly
3/27 ARM has a fixed rate for the first three years and then adjusts for each of the next 27 years
30-year fixed mortgage is a loan that has an interest rate that stays the same for the 30-year term of the loan
5/1 jumbo is an ARM that exceeds a certain amount, it has a fixed rate for the first three years and then adjusts yearly based on index

Smart tips

2007-10-19T19:47:00Z

Home equity allows you to borrow money by mortgaging your home. This is one of the simplest methods of borrowing that takes place nowadays to meet the growing requirements of cash, to renovate the house, make repairs or even pay for the children’s education. Home equity loans are made available with lower rates of interest and also provide the borrower with many other benefits. These loans can save you a lot if you use them to your advantage.

There are many lenders and each one provides you with different interest rates. You must take your time to ensure that you get the best rates. An easy way to do this is by surfing the Internet and finding the rates offered by different lenders. In this way you can get the quotes and there is no need for you to move around.

Secondly, if you have a good credit rating it is easier for you to get lower interest rates on your loan. So if you can help it, try and get a good credit score before you apply for the home equity loan. Apart from the interest rates, you should also check and be clear about the other terms and conditions. All these could be favorable if the credit score is high.

Last, but not least, it is important that you borrow the amount of money that you require. There is no need to borrow in excess just because the lender is willing to give you more. This is because the higher the value of the loans the higher will be the interest rate and also the loan would be repaid over a longer period of time.

Smart Home Loan Rates

What are ARM, fixed rate mortgage and jumbo?

Smart tips