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Which Loan Fits You Best?

30 Year Fixed Rate Loan

A 30 year fixed interest rate is a standout amongst the most attractive mortgage loan programs in the country. Most people look for the low monthly scheduled installments and prefer a 30 year fixed rate mortgage over an Adjustable Rate Mortgage (ARM). Since interest rates are unstable and always move up and down briskly the majority of people like to stay with a constant fixed mortgage interest rate.

  • The term of a 30 year mortgage loan program is long and consequently you pay more interest over the life of the loan.
  • It is recommended for borrowers who plan to remain in their home for an extensive period of time.
  • It is indeed the most common and easiest fixed rate mortgage loan to qualify for. Its longer-term gives you the best chance at keeping monthly mortgage payments low and being able to use the extra money for other purposes.
  • Monthly scheduled installments and Interest rate re-fixed for 30 years despite the interest rate fluctuations in the market.
  • Your rate & mortgage installment remains equivalent for 30 years. Except if your taxes or homeowner insurance rates go up, yet your mortgage rate will not change.

A 30 year fixed mortgage loan can be refinanced if the interest rates drop in the future. You can also do a "No Cost Refinance" to a new 30 Year Fixed-Rate.

15 Year Fixed Rate Loan

A 15-year fixed-rate mortgage offers:

  • A lower interest rate than a 30-year or a 20-year fixed rate mortgage. This will save you a significant amount of mortgage interest over the life of a loan.
  • You will build up equity in your home quickly, which can allow you to move to pay off the mortgage loan sooner or move to a more expensive home sooner. If you are nearing retirement, this shorter term allows you to claim your home faster.
  • It is suitable for people seeking to pay the loan quickly and thus prefer a 15 years fixed rate as compared to a variable rate or 30 years fixed.

The term of 15 years fixed loan program is shorter as compared to 30 years fixed. Thus, monthly installments are higher. However, the mortgage loan amount pays off quickly and you pay considerably less mortgage interest amount over the life of the loan.

Adjustable Rate Loan (ARM)

  • 7 Year ARM.
  • 5 Year ARM.
  • 7/1.
  • 5/1.

An adjustable-rate mortgage (ARM) is a loan with an interest rate that can be adjusted at pre-set intervals. The amount of adjustment depends on several factors outlined below.

  • Some ARM loans have an initial period when the interest rate is fixed for a period of time 2, 3, 5, 7, or 10 years. After the fixed period the loan converts to an adjustable rate mortgage.
  • Some ARM loans are adjustable during the first year with the adjustable beginning after 1, 3, 6 or 12 months. Usually, there is a cap on the rate, which determines the highest the rate could ever go after the ARM period is over.

Adjustable Interest Mortgage (ARM) loans adjust based on the following factors

The index of an ARM is the financial medium that the loan is "attached" to, or adjusted to. The most familiar indices, or, indexes are the LIBOR (London Interbank Offered Rate), 1-Year Treasury Security, 6-Month Certificate of Deposit (CD), Prime, and COFI (the 11th District Cost of Funds). Each of these indices moves up or down based on fluctuations in the financial markets.

The margin is one of the most significant aspects of ARMs because it is added to the index to determine the interest rate that you pay. The margin added to the index is known as the fully indexed rate. As an example, if the current index value is 4.250% and your loan has a margin of 2.0%, your fully indexed rate is 6.250%. Margins on loans range from 1.75% to 3.5% depending on the index and the amount of the loan.

Several loan programs have payment caps as a substitute of interest rate caps. These loan programs diminish payment shock in a rising interest rate market, but can also lead to deferred interest or "negative amortization". Such loans normally cap your annual payment increases to 7.5% of the previous payment.

This limits how the interest rate can be changed each time it is adjusted. The cap is usually between 1 and 2%.

Practically all ARMs have a maximum interest rate or lifetime interest rate cap. However, the limit of lifetime cap varies within each company and different loan programs. Loans with low lifetime caps usually have higher margins.


  • The ARM allows you to have the lowest interest rate and lower monthly payment for a short period.
  • You have the option to refinance if interest rates drop.
  • Rates and payments may go down if rates improve.
  • It is a great program if you want to sell the house within a short period of time.
  • You may qualify for a higher loan amount.


  • Normally one must refinance after the ARM period is over otherwise the rate could be higher.
  • It is likely that after the ARM period you might have to refinance at a higher rate if the interest rates are high at that time.

Interested in learning more about refinancing?