Fixed-Rate Mortgage Options

Predictable monthly payments

A fixed-rate mortgage offers a straightforward monthly payment. With a fixed-rate mortgage, your interest rate—and your total monthly payment of principal and interest—will stay the same for the entire term of the loan. That predictability makes it easier to set your budget.What do you want to learn about fixed-rate mortgages? Choose a topic you’re interested in.>

Advantages of a fixed-rate mortgage

Fixed-rate mortgages are a good choice if you:

• Think interest rates could rise in the next few years and want to keep the current rate
• Plan to stay in your house for many years
• Prefer the stability of a fixed principal/interest payment to a payment that changes periodically (which is what happens with an adjustable-rate mortgage)

With a 30-year fixed-rate loan, you would have a lower monthly mortgage payment compared with a 15-year fixed-rate mortgage, but you’ll pay more interest over the term of the 30-year loan. Depending on what you can comfortably afford for a monthly mortgage payment, a 30-year fixed-rate loan might be a better fit for your budget.

How term affects interest and equity

In general, the longer the term of the mortgage is, the more interest you will pay over the life of the loan and the higher your interest rate will be, but your monthly payments will tend to be lower. The shorter the repayment term is, the faster you’ll pay off and build equity in your home, though your monthly payments will generally be higher. Fixed-rate mortgage loans are available in a variety of repayment terms, with 30, 20 and 15† years being the most popular.

30-year fixed-rate mortgage†

The 30-year fixed is one of the most popular mortgages. Many people like the fixed interest rate and lower monthly payments. But since the term of the loan is long, you’ll pay more interest over the life of the loan than you would on a shorter-term mortgage, and you’ll build equity more slowly.

15-year fixed-rate mortgage†

You generally pay a lower interest rate with a 15-year loan than you would for longer-term fixed-rate loans. You will pay less interest than you would with a longer-term loan and build equity more quickly. However, your monthly payments will be higher for a 15-year than they would be on a longer-term mortgage.

Other fixed-rate mortgages

Other fixed-rate mortgage options may include different terms, such as 25 and 10 years.† In addition, there are fixed-rate interest-only mortgages that begin with low interest-only payments for a period of time before including payments on the principal balance. Learn more about interest-only mortgages.

Jumbo loans

If your mortgage will be for an amount higher than conventional thresholds, a jumbo mortgage may be an option. Jumbo loans are available for primary homes, secondary or vacation homes, investment properties and condominiums, and they are also available in a variety of terms. Jumbo home loans may have a higher interest rate and different requirements for your down payment than smaller home loans due to different underwriting requirements.

Adjustable-Rate Mortgage Option

Lower initial interest

Adjustable-rate mortgage (ARM) loans provide a low interest rate for an initial payment period, making the initial monthly payments less than those a fixed-rate mortgage usually offers.

How an adjustable-rate mortgage impacts payments

After the lower initial rate period, the ARM loan’s interest rate will adjust to a fully indexed rate, and it is likely that your rate and your payments will increase. If the rate goes up after the initial period, your monthly payments go up, so you want to be financially prepared to make larger payments.ARM loans are available for a 30 year† term. In addition to the term, ARMs have different options for how long the initial interest rate will last before the rate can start to adjust. So, for example, you could get a 7/1 ARM, and your interest rate and payment would stay the same for 7 years before being open to annual adjustment.When you consider ARM loans, find out how and when your rate can change, because those factors will determine how much your monthly payment is.

Advantages of an adjustable-rate mortgage

Adjustable-rate mortgages are a good choice if you:

• Are planning to move in a few years (before the end of the initial rate period) and therefore aren’t concerned about possible rate increases
• Expect your income to rise enough in the coming years to cover any increase in payments resulting from an increase in the interest rate
• Want a lower initial monthly payments than a fixed-rate mortgage usually offers
• Think interest rates may fall in the future

Some disadvantages of adjustable-rate mortgages:

• Interest rates will increase in a rising rate environment
• Increase in rates will increase payment amount, which may not keep pace with increase in income
• Increase in interest rate will reduce accumulation of equity, especially where home values are declining, and may make it more difficult to refinance your loan

10/1 adjustable-rate mortgage†

A 10/1 ARM has a fixed interest rate for the first 10 years. After 10 years, the rate can change once every year for the remaining life of the loan. When the rate changes, your monthly payments will increase if rates go up and decrease if rates fall.

7/1 adjustable-rate mortgage†

A 7/1 ARM has a fixed interest rate for the first 7 years. After 7 years, the rate can change once every year for the remaining life of the loan. When the rate changes, your monthly payments will increase if rates go up and decrease if rates fall.

5/1 adjustable-rate mortgage†

A 5/1 ARM has a fixed interest rate for the first 5 years. After 5 years, the rate can change once every year for the remaining life of the loan. When the rate changes, your monthly payments will increase if rates go up and decrease if rates fall.

Learn about ARM interest rate caps and indices

ARMs begin with a start rate, also known as the initial interest rate, which gives you a special low monthly payment for a set amount of time, such as 5, 7 or 10 years. After the initial rate period, the rate adjusts to a fully indexed rate, explained below, and it is likely that your rate and your payments will increase.

The rate you pay on an ARM after the initial rate is based on a fluctuating index plus a fixed extra amount, called a margin. For example, if the interest rate for the financial index was 5.5% and your margin was 2%, then your rate at the time of adjustment would be 7.5%. Keep in mind that different indexes go up and down faster than others, and both the index used and the margin can vary among lenders. How often your payments are adjusted based on the index, and how much rates and payments increase at each adjustment, depends on your loan terms.

ARM interest rate capsARM loans typically feature an adjustment “cap” which limits how much the interest rate can go up. However, the maximum payment should be factored into your budget. Rate caps can limit the size of interest rate changes both for periodic adjustments and for the life of the loan.

When finding out about ARM refinance options, be sure to ask the following questions:

• Does the ARM you’re considering include a rate cap?
• How often does the rate change?
• Can you convert your ARM to a fixed-rate payment? Some ARMs offer a conversion feature that allows you to convert to a fixed-rate loan at certain times during your loan term.
• Is your ARM assumable?
• Are there any penalties for paying off your loan early, also called a prepayment fee? Being able to prepay your ARM will allow you to refinance if rates go down.

ARM financial indices
Every ARM loan uses a money rate index to determine the loan rate for a set period. Lenders have no control over any of the money rate indices. You can track the performance of each index in The Wall Street Journal. The rate you pay is set at each adjustment period by adding the rate of the index plus your margin (which remains the same from period to period). Below are some common ARMs and the indices on which they’re based. Even though rate indices may adjust more frequently than every year, Fountain City Finance ARMs do not adjust more frequently than once a year.

Treasury-Indexed ARMs (T-Bills)
Tracks the weekly average yield of U.S. Treasury securities adjusted to a constant maturity of 6 months or 1 year. The interest rate on an ARM from Fountain City Finance will adjust once each year. Per-adjustment caps and lifetime rate caps vary.

London Interbank Offered Rate ARMs (LIBOR)
The LIBOR index tracks the rate international banks charge each other for large loans in the London interbank market. This ARM adjusts to the LIBOR annually based on the 1-year U.S. dollar–denominated deposits in the London market, as published in The Wall Street Journal. The 1-year LIBOR ARM has a lifetime cap of 5%.

Government Loan Options

FHA and VA mortgages

The Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) offer government-insured1 mortgage loans. These loans have features that make them easier for first-time home buyers to obtain2.

These features include:

• low down payment requirements
• flexible credit and income guidelines

FHA mortgage features

• Low down payment
• No maximum income/earning limitations3
• Fixed- and adjustable-rate loans available
• Insurance from the federal government replaces private mortgage insurance (PMI)
• Maximum loan amounts vary by county

VA mortgage features

• No down payment loans up to a certain amount for qualified veterans
• Fixed- and adjustable-rate loans available
• More flexible qualification guidelines than those for conventional loans

Specialized Loans

Flexible home-buying options

Whether you’re looking for loans with flexible, low down payment options, down payment or closing cost assistance, or think a jumbo loan or combination loan might be right for you, our experienced loan officers will work with you to help you determine what you can comfortably afford. Fountain City Finance offers a wide range of flexible home-buying options to help qualified borrowers find out what they can comfortably afford to become successful homeowners. Our mortgage loan experts are available to meet with you to discuss your customized options.

Find a mortgage loan officer in your area. For more information on any loan, call a Fountain City Finance Company today at (865) 687-8200.

Jumbo loans

Jumbo loans are for home buyers who require larger loan amounts. Variations of jumbo loans are available, including fixed-rate and adjustable-rate options. Jumbo loans generally have higher interest rates because of the amount of money borrowed as well as different down payment and underwriting requirements.

Combination loans

A combination loan pairs a first mortgage and a home equity second mortgage—with 1 down payment. Combination loans may help you avoid the higher rates of a jumbo first mortgage when paired with a conforming first mortgage. Combination loans enable you to customize your financing terms and may allow you to build equity faster and/or lower your total monthly payment.