Types of Mortgages

Aug 30, 2016 | Posted in Home Buying

There are many types of mortgages, with the most common being fixed-rate or adjustable, so the best mortgage for you depends on your situation. Our mortgage experts can help you obtain the best possible mortgage at excellent rates.

Fixed-rate mortgages come with an interest rate that remains constant over the life of the loan. 30-year mortgages are the most common, but you may also choose a 20-year, 15-year, and even 10-year fixed-rate mortgage. In certain high-cost areas some mortgage lenders are even offering 40 year-loans. Though the mortgage interest rates tend to be higher than for other loan types, the rate is fixed and your payment won’t change. This stability makes them the most secure type of mortgage for buyers.

Adjustable-rate mortgages (ARMs) have a period of fixed interest, but after that the payment changes with whatever index the loan is based on. The period of fixed interest may be three, five, or seven years. With a 5/1 (the first number stands for the number of years in the initial fixed period, while the second indicates how often the new rate will adjust) ARM, for example, the initial interest rate remains fixed for the first five years, and then adjusts annually for the remaining term.

There are several types of caps that may apply to an ARM: an overall cap limits how much the interest rate can increase over the life of the loan; a periodic cap limits the amount the interest can increase from one period of adjustment to the next; and a payment cap limits the amount the monthly payment can increase at each adjustment.

While ARMs are less secure than fixed-rate mortgages, they tend to have lower initial rates and therefore lower monthly payments. They can be a good option if money is tight in the early years; as long as you are confident you can meet future interest and payment increases.

Veteran's Affairs (VA) loans and Federal Housing Administration (FHA) loans are two types of government-secured mortgage loans offered by Erie FCU. FHA loans are secured through the FHA, or Federal Housing Administration, while VA loans are secured through the VA, or Veterans Administration. Both of these loan programs involve lower costs than traditional mortgages, therefore helping place more people into homes.

Whether you're a first time home buyer, moving to a new home, or want to refinance your existing conventional or FHA mortgage, the FHA loan program will let you purchase a home with a low down payment and flexible guidelines.

With low interest rates and flexible guidelines a USDA home loan could help you achieve your financial goals. The Guaranteed Rural Housing Mortgage Loan Program offers fixed-rate mortgage financing guaranteed by the U.S. Government through USDA Rural Development (RD).

First-time home buyers can also benefit from our relationship with the Pennsylvania Housing Finance Agency (PHFA).

Certainly there are benefits and drawbacks to each mortgage type. Long before you borrow, consider each option carefully to know which is most appropriate for your situation. With so much money at stake, making the best mortgage decision is important. Learn more about our mortgage rates, click here.

To discuss rates and terms for FHA, VA and other government loans, please talk to an Erie FCU loan officer at (814) 825-2436.