Mortgage Products

Understanding Loan Options for Refinance

Grandmother spending time with her granddaughter after refinancing her home and funding home improvement projects

Your guide to choosing the right home loan

Lenders offer a wide range of loan programs to meet the financial needs of almost any home owner. Here is brief overview of the features and advantages of each type of home loan; your mortgage banker will explain all of the options available and help you get the loan that works

Fixed-rate Mortgages

With a fixed-rate mortgage, the interest rate remains the same throughout the life of the loan and, in general, your monthly principal and interest payments will never change. As a trade-off for the security of knowing that your monthly payment won’t increase, fixed-rate mortgages typically have a slightly higher initial interest rate than adjustable-rate mortgages.

You may prefer a fixed-rate mortgage if:

  • You like the stability of having the same mortgage payment every month.
  • You plan to stay in the same home for at least 5 to 7 years
  • You don’t want to take the chance that interest rates could rise in the future.
  • You can afford a slightly higher monthly payment in the first few years of the loan (compared to the payment on an adjustable-rate mortgage).

When picking the term that best suits your needs, keep in mind that a fixed-rate loan with a shorter term will generally have a lower interest rate, allow you to build equity faster and result in a lower total amount of interest paid over the life of the loan. On the other hand, fixed-rate loans with longer terms have lower monthly payments.

Adjustable-rate Mortgages (ARMs)

ARMs are offered with initial fixed-rate terms of 3, 5 and 7 years, expressed as 3/1, 5/1 and 7/1 ARMs. This means that the interest rate of the loan will be fixed for the first 3, 5 or 7 years of your mortgage, and then the rate will be adjusted annually for the remaining life of the loan.

Government Loan Programs

There is a loan program offered by a government agency (Federal Housing Authority [FHA]) that is designed to make it easier for certain home buyers to obtain a mortgage.

The features of government loans include:

  • Lower down payment requirements than a non-government loan program
  • Maximum loan amounts based on the county where you are purchasing a home
  • An insurance premium paid by the borrower at closing
  • A selection of fixed-rate loans (15-, 20-, or 30-year loans) or adjustable-rate loans (3/1, 5/1)

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