A fixed-rate conventional mortgage refers to a type of home loan in which the interest rate remains constantly fixed throughout the entire duration of the loan. This means the interest rate you initially agree upon with the lender will stay the same, regardless of any fluctuations in the broader interest rate market.
Key characteristics of fixed rate mortgages:
- Stable Monthly Payments: Your monthly principal and interest payments amounts remain unchanged over the life of the loan.
- Protection from Interest Rate Increases: It shields you from rising interest rates.
- Longer Loan Terms: Fixed-rate mortgages often come with longer repayment terms, typically ranging from 15 to 30 years.
An adjustable-rate mortgage (ARM) refers to a type of home loan with a variable rate. With an ARM, the initial interest rate is fixed for a period of time. After that, the interest rate applied on the outstanding balance resets periodically. The interest rate for an ARM is typically tied to performances of a specific benchmark (e.g., US Treasury Rate, Secured Overnight Financing Rate. As the index rate changes, the interest rate on the ARM adjusts accordingly.
Key features of adjustable-rate mortgages:
- Initial Fixed-Rate Period: ARMs often start with an initial fixed-rate period, typically ranging from one to ten years. During this period the interest rate remains fixed.
- Interest Rate Adjustments: After the initial fixed rate period, the interest rate on an ARM can adjust periodically. The adjustments frequency varies, but common intervals include annually, semi-annually, or monthly. When the adjustment occurs the interest rate is recalculated based on the current index rate, along with a predetermined margin or spread set by the lender.
- Index and Margin: The interest rate is based on the performance of a specific financial index. The lender adds a margin to the index rate to determine the new interest rate. For example, if the index rate is 3% and the margin is 2%, the new interest rate would be 5%.
- Rate Caps and Limits: To protect borrowers from dramatic interest rate fluctuations, ARMs typically have rate caps. Rate caps set limits on how much the interest rate can increase or decrease during a specific time or over the life of the loan.
- Potential for Rate Increases and Decreases: ARMS exposes borrowers to potential interest rate changes. If market interest rates rise, the interest rate on the ARM will increase, resulting in higher monthly payments. Conversely, if rates decrease, the interest rate and monthly payments may go down as well.
Biweekly loans are a type of loan repayment schedule where the borrower makes payments every two weeks instead of the traditional monthly payments. This results in 26 half-payments in a year, which is equivalent to 13 full monthly payments. This accelerated payment schedule can help borrowers pay off their loans faster and save on interest compared to monthly payments.
A construction loan refers to a short-term financing option specifically designed to fund the construction or renovation of a property. It is a specialized type of loan that provides funds in stages or “draws” as the construction progresses, rather than disbursing the full loan amount upfront. It is a two-phase loan that combines the construction phase and the permanent mortgage into a single loan package.
Key benefits of Construction & Construction Permanent
- The total approved loan amount is not usually given to the borrower right away, in one lump sum. The construction loan operates like a line of credit from which a borrower can access funds (draw period) as needed at various stages of the construction project.
- Easier to qualify.
- Less closing costs
- Interest-Only payments during construction draw period
- Flexible terms
A home equity loan, also known as a second mortgage, is a type of loan that allows homeowners to borrow money against the equity they have built up in their property. Equity is the difference between the current market value of the home and the outstanding balance on the mortgage or any other liens on the property.
Home Equity loans typically provide borrowers with a lump sum of money that can be used for various purposes. The loan amount is based on the value and the amount of equity in the property.
Key features of home equity
- Loan is secured by the property.
- Home equity loans generally have fixed interest rates and fixed repayment terms.
- The interest on these loans is often tax-deductible (scenario based).
A home equity line of credit (HELOC) is a revolving line of credit that allows homeowners to borrow money against the equity they have in their property. A HELOC provides borrowers with a predetermined credit limit that they can access as needed within a specified period, known as a draw period. Equity is the difference between the current market value of the home and the outstanding balance on the mortgage or any other liens on the property.
With a HELOC, homeowners can tap into this equity to finance various expenses. Unlike a home equity loan, which provides a lump sum, HELOC offers more flexibility. Browsers can withdraw funds as needed during the draw period, which typically lasts around 5 to 10 years.
HELOCs often have variable interest rates, meaning the interest rate fluctuates over time based on market conditions. The interest is typically calculated based on a benchmark rate, such as the prime rate, determined by the lender.
After the draw period, the HELOC enters the repayment period, which is usually around 10 to 20 years. During this phase, borrowers can no longer withdraw funds and must begin repaying the outstanding balance.
Commercial loans are financial instruments provided by financial institutions. These loans are specifically designed to meet the funding needs of commercial enterprises and are distinct from consumer loans that are intended for personal or household use.
Commercial loans typically involve larger loan amounts and longer repayment terms compared to consumer loans. They are used by businesses to finance capital expenditures, expand operations, invest in new projects, manage cash flow, acquire assets or equipment, refinance existing debt, or meet other business-related expenses.
