Initial Fixed Rate Home Loans
This is the loan that has been credited with causing the "Mortgage Meltdown" that started in August of 2007. If this loan is used right, it has some very atractive features.
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.
- An 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.
- A rate discount for automatic payment is normally received. Make your payments automatically from a checking or savings account and get a 1/8% rate discount. (Not available from all lenders.)
- 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.