Choices That Affect Your Loan

Some loan shoppers find it confusing that the interest rate quoted in an advertisement is not the one they end up with. In addition to fluctuations in the rate over time, often lenders will quote the best rate they have to try to get your business. In addition to factors like your credit history, income, and down payment, the type of loan program you choose will affect the rate of your loan.

• Mortgage term. Mortgages are generally available at 15-, 20-, or 30-year terms. The longer the term, the lower the monthly payment if the same amount is borrowed. However, you pay more interest overall if you borrow for a longer term.
• Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate for as long as you hold the mortgage and is usually a good choice if interest rates are low. An adjustable-rate mortgage (ARM) is designed so that interest rates will rise as interest rates increase; however they usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. ARMs are a good choice when interest rates are high or when you expect your income to grow significantly in the coming years.
• Balloon mortgages. Balloon mortgages offer very low interest rates for a short period of time-often three to seven years. Payments usually cover only the interest, so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.
• Government-backed loans. Government-backed loans, sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the U.S. Department of Veterans Affairs (www.va.gov), offer special terms, including lower downpayments or reduced interest rates-to qualified buyers.

Learn More from a Lender

If you would like to learn more about how your loan choices influence your payment or get prequalified for a loan, please fill out the form below and we will have one of our three Sacramento area lenders contact you today.

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