Mortgages Made Simple

Step 1: Should You Refinance?
Step 2: Choosing a New Mortgage
Step 3: Comparing Rates and Costs
Step 4: The Closing Process

Choosing a New Mortgage
Do you know the difference between fixed-rate and adjustable-rate mortgages? Learn all about it.

The next step in the refinancing process is completing a loan application and getting approved for the mortgage amount and interest rate you want.

There are many different types of loan programs available, and these fall into one of two categories: fixed-rate loans or adjustable-rate loans. It’s not uncommon for a homeowner’s current loan to be a fixed-rate and to refinance with an adjustable rate loan.

Fixed-Rate Mortgages
A standard fixed-rate loan has a fixed interest rate, a fixed monthly payment, and is fully amortizing-- that is, you pay off the loan completely--over a given number of years (for example, 15 or 30 years). A portion of each monthly payment covers the interest on the loan. Another portion reduces the principal balance. Regular payments systematically whittle down the amount you owe until the loan is paid in full.

Adjustable-Rate Mortgages
Adjustable rate mortgages (ARMs) have interest rates that go up or down with the economy, which could change your payment amounts from year to year. ARMs help lenders cover the cost of lending money in a changing economy by transferring a portion of the interest rate risk to you. In exchange for sharing the risk, you’re offered an initial interest rate that is often substantially lower than the interest on fixed-rate loans.

Choosing the Best Loan

When evaluating loan programs, you should consider:

  • Do you qualify for the loan amount?
  • How long do you plan to live in the home?
  • Is your income stable or rising?
  • Are there likely to be significant interest rate changes?
  • What are the upfront costs?

When you’re ready to refinance and choose a new mortgage, your loan officer will review the available loan programs and help you determine the type that’s best for you.