Information on Central Ohio and Columbus Ohio home mortgages and home loans including fixed rate, adjustable rate and hybrid mortgages.

Fixed Rate Mortgage:
There are generally two types:

• A 30-year fixed mortgage has the same interest rate for the entire 30 year period and is amortized over 30-years (paid in full at the end of the 30th year). You can usually pre-pay and/or refinance whenever you want. This is a conservative loan and has no rate risk. Consequently the rate is usually higher than an adjustable rate mortgage.
• A 15-year mortgage has a fixed rate but is paid off in 15 years. The monthly payment will be higher but the interest rate will be lower by about 1/2%. If you can afford the higher payment and you like the idea of the mortgage being paid off quicker then this may be appropriate for you. The bank gets less of your money in interest with this option.

Adjustable Rate Mortgages (ARM)
These loans are fixed for given periods of time, then adjust based on a formula. Typically the rate during the initial period prior to adjusting will be less than more conservative 30-year fixed-rate mortgage. They are most appropriate for borrowers who want to match up the term with how long they think they may own the house:Mid-term adjustables are fixed from five to seven years then adjust. They are usually referred to as 5/1, 5/5 and 7/1 ARMs. 

How do they adjust ?
The most common adjustment comes every year after the initial fixed period. For example, a three year ARM would adjust in year four and every year thereafter. The typical limit (referred to as a cap) on how much it can adjust annually is typically 2% with a lifetime cap of 6% over the initial rate. It can go up or down depending upon what rates do.

Tip: When shopping rates for ARMs you should also ask about the lifetime interest cap and the maximum cap for each adjustment period. A lender may offer a very low teaser rate (the rate you are quoted) but if the rate can go up 3% each year instead of 2% you may find your savings being quickly erased.

The amount they adjust by is written into the note. It will normally be based on an United States Treasury rate of like duration with a margin. For example: A one year ARM will adjust by looking at the one year treasury note and adding a margin of perhaps 2.75%. These two numbers added together will determine your rate, but not more than the year one cap. Your Agent should be aware of this because the margin is not the same at all banks. If a particular lender has a low initial rate to capture your business but during the adjustment period uses a higher margin than everyone else, then your rate will be more expensive over time. Your Agent should be shopping the margin as well as the rate.

What kind of borrower should be interested in an ARM ?

• If you know that you will only live in the house for 3 to 5 years, then why pay for the security of a 30-year fixed rate loan? You should see what the rates are for 3 and 5 year ARMs. You can use ARMs to match the term of the loan with the length of time you intend to live in the house.
• If You have expectations of an increasing income. If you are confident that your income will increase enough to cover the potential of increases in your mortgage when it adjusts, then you are minimizing your exposure to risk. It is also appropriate if you have debts or payments that are going to be going away.