Home Loan Options

 

There are dozens of home loan options available for a variety of needs, but they generally fall into three major categories:

  • Fixed-Rate Mortgages
  • Adjustable-Rate Mortgages
  • Home Equity Loans

You can learn more about the types of loans available in each category below, or feel free to contact a Stanford FCU Mortgage Consultant for assistance.

Fixed-Rate Mortgages

Fixed-rate mortgages offer a constant mortgage payment throughout the loan term. Your monthly payment will not change because your interest rate doesn’t change.

This type of loan maintains its original interest rate throughout the entire life of the loan. Any change in your monthly loan payment will be due to increases in other charges like insurance or taxes that may naturally occur over time. Fluctuations in market mortgage interest rates over the term of your loan won’t have any impact on the amount of interest you pay because your rate is already “fixed.” A fixed-rate mortgage loan may be a good choice if you:

  • Want the security of knowing your interest rate will not change, nor will your monthly payment, unless property tax and insurance amounts change
  • Plan to stay in this home for several years
  • Don’t expect your income to increase significantly in the coming years

Fixed-rate mortgages come in various terms such as 10, 15, 20 or 30 years. The longer the term, the lower your monthly payment will be, because the cost of the loan is spread out over a longer period of time. However, the longer the term, the more interest you will pay, because it will compound daily over a longer period of time. For example, a 10-year loan will result in the lowest interest paid, but the monthly payment may not be affordable.

Another option to decrease the amount of interest you pay is to pay a little “extra” each month towards the principal when you are able to do so.

Fixed-Rate is the Best Choice for: Advantages: Disadvantages:
Plans to stay in this home for several years Consistent monthly payments Possibly higher interest rate than other loan options

Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARMs) typically begin with a lower interest rate and monthly payment compared to a fixed-rate mortgage. After the initial fixed-rate period expires, the interest rate can adjust up or down depending on the current rate market. And the rate will adjust periodically according to the terms of the loan.

Most ARMs have a 30-year term and are named for the initial fixed-rate period. For example, a 5/1 ARM has an initial 5-year fixed-rate period, and during the remaining 25 years the rate can periodically adjust up or down. The most common ARM terms are 3/1, 5/1, 7/1 and 10/1.

An ARM may be a good choice if you:

  • Want to maximize your buying power
  • Want to keep your payments lower during the first few years of your loan
  • Plan to move into a different home within the next seven to ten years
  • Plan to pay off your mortgage within the next seven to 10 years
  • Expect your income to increase significantly in the coming years
ARM is the Best Choice for: Advantages: Disadvantages:
Low initial payments if you’re expecting to move or earn a lot more income in the coming years Low initial rate and payment Interest rate and monthly payment will adjust after the initial fixed rate term has expired

Home Equity Loans

If your home is worth more than you owe on your mortgage, you have equity! You can borrow up to 80% of your combined loan-to-value and use the funds for any purpose, such as repairs, remodeling, paying for college, or paying off other debt.

Home equity loans are available as fixed-rate loans or adjustable-rate home equity lines of credit (HELOCs). The home equity loan provides the funds in one lump sum, and the HELOC lets you draw on the funds as needed over a specified period of time.

Home Equity Loan is the Best Choice for: Advantages: Disadvantages:
Funds needed for a one-time purpose Pay off loan in a specific timeframe with fixed monthly payments Higher payments over the entire life of the loan

 

HELOC is the Best Choice for: Advantages: Disadvantages:
Borrowing money from your line of credit whenever you need it Flexible line of credit is available when you need funds, with a lower initial monthly payment Your payment and rate may change over the life of the loan

Learn more

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