Real Estate Fairfax Virginia Norm and Franci Bissett REMAX

There are a number of different types of mortgages available to home purchasers. The following is a brief description of several of the most common types to help you decide which product is right for your individual financial situation.

Fixed rate mortgages are a good choice for those who are planning to remain in the home they purchase for an extended period. This type of loan ensures that your interest rate will remain the same for the life of the loan. Fixed rate mortgages can be obtained for 15, 20 or 30-year terms.

A 30-year term is the easiest fixed rate mortgage to qualify for, since the repayment period is extended, thereby lowering the monthly payment. Since a higher percentage of the monthly payment is accrued interest, the 30-year fixed rate mortgage also offers the greatest interest deduction for tax purposes. 20-year mortgages typically offer lower interest rates than 30-year mortgages, 15-year mortgages are lower still. However, due to the accelerated repayment period, your monthly payment will be higher than a 30-year mortgage for the same loan amount. 20 and 15-year mortgages may appeal to those looking to build equity in a home quickly, or to those who wish to have the loan repaid in full in a shorter time frame.

Adjustable rate mortgages, or ARMs, are loans with interest rates that are adjusted periodically as the market rate changes. If interest rates increase, your monthly payment may increase as well. However, if the market rate decreases, your monthly payment could go down.

ARMs appeal to many people because they typically offer lower initial interest rates than fixed rate mortgages. Since the monthly payment is lower, you can qualify for a larger loan amount, potentially enabling you to purchase a home that would otherwise be unattainable.

An ARM may be the right choice for those who are upwardly mobile and are sure that their income will increase enough in the future to offset any potential increase in the monthly payment. Those who only intend to own their home for a few years may also want to consider an ARM, as they are not as concerned about the potential future increase of interest rates.

ARMs have two maximums, or caps, on how much the interest rate is allowed to increase. One cap limits the permissible increase in interest rate over the life of the loan. The other cap limits the rate increase during each adjustment period. The cap limits and the frequency of the adjustment periods depend on the terms of the loan. You should ensure that you fully understand all the terms of an ARM before you decide on this type of financing.

Some ARMs offer a conversion feature, which allows you to convert your ARM into a fixed rate mortgage, but only at certain predetermined times during the life of the loan. This feature appeals to some people, as it enables them to receive the benefit of a lower initial payment per the ARM, but allows the loan to become a fixed rate loan should they decide to remain in the home for a longer period of time. Of course, the danger is that the interest rate will be up during the predetermined period when conversion is allowed. You will also pay extra up front for the conversion option, whether or not you ever use it.

As mentioned earlier, the interest rate on ARMs can change periodically, dependent on the market rate. ARMs are tied to a specific financial index, but the particular index may vary from ARM to ARM. You should be aware of the financial index that affects your loan. Some of the most common indices are:

There is also a special type of ARM called the Initial Fixed period ARM. This loan allows you to obtain an initial fixed rate for 3, 5, 7, or 10 years. At the end of your chosen fixed rate period, the interest rate adjusts annually for the life of the loan. This type of product protects you from increased interest rates during the early period of your loan.

Balloon loans typically offer lower interest rates than traditional long term financing. This type of loan usually has a term of 5, 7 or 10 years, after which you must refinance or pay off the loan in full. This type of loan may appeal to those who intend to sell or refinance within a few years. Even in more traditional financing, some 15-year second trusts may be amortized over 30 years. The last payment at the end of the 15 years is a balloon payment, and must be refinanced or paid in full.

The two most notable agencies that offer government insured loans are the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA). These loans are issued by approved lenders and insured by the government agency in question.

FHA loans offer low down payments and potentially more flexible qualification guidelines than conventional loans. FHA loan limits vary depending on the average cost of housing in the area.

VA loans are an attractive option for those who qualify, and offer the chance to purchase a home with no down payment. The qualifying ratios for VA loans are more flexible than either FHA or conventional programs. The maximum VA loan amount in the Northern Virginia area is $203,000.

When selecting a lender, it is important to choose one with competitive rates, a financing program that meets your individual needs, and an established track record of exceptional customer service. If you already have a relationship with a lender with whom you are satisfied, we would encourage you to use him again. If you are new to the area, or currently searching for a reputable lender with good rates and a wide variety of loan programs, we would recommend the services of Ed Dean with George Mason Mortgage Corporation. Ed Dean can be contacted at deangmmc@aol.com or (800) 867-6859.

Franci Bissett, GRI
Norm Bissett, ABR, CRS, GRI
Associate Broker
RE/MAX Premier
Each Office Independently Owned and Operated
13135 Lee Jackson Hwy, Suite 115
Fairfax VA, 22033
(703) 378-2078 (Direct)
(703) 802-2853 (Fax)
E-mail: Info@virginia-properties.com