Fixed Rate Mortgages

Fixed Rate Mortgages are the easiest ones to comprehend. There are basically two main loans, the 30-Year Fixed and the 15-Year Fixed. The 30-Year Fixed Rate Mortgage has a stability feature. The reason one takes this type of loan is because there is a consistent payment, one that you can be rest assured for the next 30 years will never change, unlike Adjustable Rate Mortgages. So the main feature of a 30-year fixed is the stability; however, the trade off is that you are going to pay in most cases a higher rate of interest than on any other type of loan.

Presently, a 30-Year Fixed Rate mortgage is around 7.5% at no points. Now, you can get a little bit of a lower interest rate on a 15-Year Fixed Rate mortgage, but the payment will be substantially higher. This is because you are paying on an accelerated amortization schedule and paying down the loan in half the time.

The rate on a 15-Year Fixed Rate mortgage is currently around 7.00%, which is a half percent lower than the 30-Year. The 15-Year Fixed Rate mortgage is only advisable if the client can handle the payment. The one thing that you need to understand is you can never take a 15-Year and stretch it out to make it longer. You can always take a 30-Year loan and turn it into a 20- or 15-Year loan by prepaying the principal.

If cash flow gets difficult, you can always revert it to that 30-Year diluted payment, which will allow you to be more comfortable in your home loan.

• Strengths: This program provides long-term rate security.
• Weaknesses: Often the highest rate program, this may be more rate security than the owner will ever need.
• Comments: This is a good program if the owner does not plan to move or refinance for more than 10 years and if rates are historically very low. It makes sense to purchase points if the borrower plans to be in the property for at least 4 ½ years.

• Strengths: This program provides rate security for 15 years. Rates are often a ½% better than the 30 year fixed. With this NH loan, more of your monthly payment is applied to principal and less to interest. You build equity at twice the pace of a 30 year loan without making double the payment.
• Weaknesses: The borrower will qualify for a smaller loan amount than for the 30 year amortized programs.
• Comments: If building equity is your goal and you would rather save money on interest than buy a more expensive home, the 15 year is the program for you.

30 and 15 year mortgage terms are the most popular. With the traditional 30-year fixed rate mortgage your monthly payments are lower than they would be on a shorter-term loan. But if you can afford higher monthly payments a 15-year fixed-rate mortgage allows you to repay your NH loan twice as faster and save more than half the total interest costs of a 30-year loan. Fixed-rate mortgages are available for 30, 25, 20, 15 and 10 years. Generally, the shorter the term of a loan, the lower the interest rate is.

Balloon Loans

• Strengths: The interest rate on balloon loans is generally lower than 30- and 15- year mortgages resulting in lower monthly payments.
  
• Weaknesses: At the end of the term you will have to come up with a lump sum to pay off your lender, either through a refinance or from your own savings.
  
• Comments: Balloon loans are short-term fixed rate loans that have fixed monthly payments based usually upon a 30-year fully amortizing schedule and a lump sum payment at the end of its term. Usually they have terms of 3, 5, and 7 years. Balloon loans with a refinancing option allow borrowers to convert the mortgage at the end of the balloon period to a fixed rate loan -- based upon the outstanding principal balance -- if certain conditions are met. If you refinance the NH loan at maturity you need not be re-qualified, nor the property re-approved. The 5/25 and 7/23 are the most popular balloon terms.

• Strengths: This program provides long-term rate security.
• Weaknesses: Rates are higher than even the 30 year fixed conforming, which makes this a very expensive mortgage compared to Jumbo ARM's.
• Comments: This is a good program for the security conscious and those with fears of rising rates, but not usually a good way to save money.

• Strengths: This program offers rate security for 15 years. Rates are often a ½% better than the 30 year. More of your payment goes to principal and less to interest. You build equity at twice the pace of a 30 year loan without making double the payment.
• Weaknesses:The borrower will qualify for a smaller loan amount than for 30 year amortized programs.
• Comments: If building equity is your goal and you would rather save money on interest than buy a more expensive home, the 15 year is the program for you.