This page will give information about the rates and terms you will see advertised for loans. The information provided is to help you ask some good questions to the lenders you will be contacting for financing.
Rate refers to the interest rate of the loan, but more importantly, it refers to the type of rate. There are 2 different rate types, fixed and adjustable.
A fixed rate means that the rate is set for the life of the loan. It can never change unless you refinance. So as long as you have the loan, the rate won’t change. The benefit of a fixed rate is its constant for the life of the loan so your principal+interest payment remains the same. They are a good option for long-term financing.
Adjustable Rate (ARM)
Adjustable rate (or ARM) means the rate can and most likely will change during the life of the loan. Sometimes the rate starts off low and remains set for a period of time before it starts to “adjust”. The benefit of the ARM is a lower interest rate at the start of the loan. So it is a good option for shorter term financing where you plan to refinance or move before the rate starts to adjust.
Most loans are amortized which means they pay down over time. That time period is the term. Amortized loans are defined by the rate and term. Here are some examples of rate and term loans you will find:
30 Year Fixed Rate
This is a loan which provides for a fixed interest rate and equal payments for life of the loan.
15 Year Fixed Rate
Similar to the 30 Year Fixed except it pays off in half the time. For a 15 year loan your interest rate will be lower than the 30 year fixed but your monthly payments will be higher since it is a shorter term.
1, 3, 5, 7, 10 Adjustable Rate Mortgages
These types of loans allow you to carry a fixed interest rate for a specified amount of time (1, 3, 5, 7, 10 years). After the specified time is up, the interest rate will adjust for the remaining life of the loan. So if you chose a 5 year ARM, your interest rate and payment will not change for the first 5 years of the loan. After the 5 years, the rate will be adjusted for the remaining life of the loan.
As you can see, there are many options for loans and it depends on your personal situation. It is important to find a lender that can walk you through the various options to find a loan that suits you the best.