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This loan has two phases. During the initial phase, the interest rate and monthly
payments are fixed. After this period, the interest rate becomes adjustable, tied to an
index. You can choose an initial fixed rate term of 3, 5, 7 or 10 years.
This type of loan may be best for you if:
You want the lower payments of an adjustable-rate mortgage along with the payment
stability of a fixed rate mortgage.
You want the security of knowing your payments will be the same for 3, 5, 7 or 10 years.
You plan to move in a few years.
The features of initial fixed rate home loans normally include:
A choice of initial fixed terms. You can choose a loan with an initial
fixed-rate period of three, five or seven years.
Interest rate caps. When your loan becomes adjustable, your initial rate can only
move up or down by 3% from the fixed rate, protecting you from payment shock. At
subsequent rate change dates, the maximum periodic adjustment is 2% annually. All interest
rate changes are also subject to a maximum interest rate ceiling.
Rate discount for automatic payment. Make your payments automatically from a
checking or savings account and get a 1/8% rate discount. (Not available from all
lenders.)
Assumability. These loans are normally assumable during the period they are
adjustable.
No deferred interest. These loans are normally fully amortized over the life of the
loan so you'll avoid the surprises that can accompany negative amortization.
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