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| Pay Option ARM |
| Fixed Rate Mortgage (FRM) |
| Adjustable Rate Mortgage (ARM) |
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Pay Option ARM
In a standard pay option loan you will have the choice of making one of four different payments to the lender each month; you have the choice every month of what payment you would like to make. The pay option loan is an adjustable mortgage where the interest may vary a little bit each month. However, your minimum payment (not rate) will be fixed for the first year, then fixed for the second year, third year, fourth year, and fifth year. The minimum payment will increase annually by 7.5%.
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Fixed Rate Mortgage (FRM)
Interest rates or principal and interest (PI) payments stay the same for the life of your loan. These mortgages usually come in terms of 5, 10, 15, 20, and 30 year terms, although 40 and 50 year terms are also available. Most of the time, rates will be lower for shorter terms, and go up as the term lengthens.
Fixed Rate Mortgages are for borrowers who want the predictability and certainty of a stable mortgage payment. They are also for those who plan to stay in their homes for a long time and expect interest rates to rise.
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Adjustable Rate Mortgage (ARM)
An Adjustable Rate Mortgages (ARM) offers a lower interest rate to start, so your monthly payments are generally lower. With an ARM, borrowers can qualify for a higher mortgage and enjoy a lower initial interest rate and payment. Adjustment periods depend on which product you chose, but typically come in terms of 5, 7, and 10 years. This means that your interest rate will be fixed for the first 5, 7, or 10 years (of your 30 year loan) and will adjustable after that time depending on an "index". In most cases, borrowers will refinance before the initial fixed term is up. Usually, interest rates are lower for shorter fixed terms and higher for longer fixed terms.
ARMs are for borrowers who want or need more home than they can qualify for at a fixed rate. They are also for borrowers who believe interest rates will probably stay the same or go down.
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Unless otherwise indicated, these APR calculations are based on the following: Conforming loans (whose maximum loan amount is below $417,000 for the contiguous states, District of Columbia, and Puerto Rico or below $625,500 for Alaska, Guam, Hawaii and the Virgin Islands) are calculated based on a loan amount of $417,000 with closing costs of $0. Jumbo Loans (whose maximum loan amount exceed $417,000 for the contiguous states, District of Columbia, and Puerto Rico or exceed $625,500 for Alaska, Guam, Hawaii and the Virgin Islands) are calculated based on a loan amount of $3,000,000 with closing costs of $0. Your actual APR may be different depending upon these factors.
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