Loan Programs

A fixed rate mortgage is most popular now with historically low interest rates. Fixed rate mortgages have the same interest rate and monthly payments for the life of the loan.  There is no risk of rate increases making monthly payments unaffordable.  This is especially a good idea if you don't think you'll be moving within the next five years or so. On the other hand, if you do see yourself moving within the next few years, an ARM with a low initial rate might be the best way to lower your monthly payment.

A 25-30 year fixed rate mortgage allows for the lowest monthly payments over a longer term. A 10-15 year fixed rate mortgage is a great option for people whose main goal is not to save money on their monthly payment but rather want to build up equity and pay off their home more quickly.

An adjustable rate mortgage (ARM) determines what you must pay based on an outside index, perhaps the 6-month Certificate of Deposit (CD) rate, the one-year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others. They may adjust every six months or once a year.

Most programs have a "cap" that protects you from your monthly payment going up too much at once. There may be a cap on how much your interest rate can go up in one period, say, no more than 2% per year, even if the underlying index goes up by more than 2%. You may have a "payment cap," that instead of capping the interest rate directly caps the amount your monthly payment can go up in one period. In addition, almost all ARM programs have a "lifetime cap", your interest rate can never exceed that cap amount, no matter what.

ARMs often have their lowest, most attractive rates at the beginning of the loan, and can guarantee that rate for anywhere from a month to ten years. You may hear people talking about or you may read about loans that are called "3/1 ARMs" or "5/1 ARMs" or the like. That means that the introductory rate is set for three or five years, and then adjusts according to an index every year thereafter for the life of the loan. Loans like this are often best for people who anticipate moving, and therefore selling the house to be mortgaged, within three or five years, depending on how long the lower rate will be in effect.

Conventional mortgages are loans that are not insured by the federal government and for amounts under limits established by Fannie Mae and Freddie Mac (government-regulated private corporations). Fannie Mae and Freddie Mac administer these loans. Currently, the conventional loan limit for single families is $417,000 in the continental United States, and $625,500 for many counties in the San Francisco Bay area.

Jumbo mortgages are loans that exceed the conventional loan amount limit. These mortgages are funded by the private investment market.

FHA loans are insured, but not funded, by the Federal Housing Authority (FHA). Essentially designed for low- and middle-income borrowers and first-time borrowers who have less cash for a down payment.

VA Loans  for those with qualified military service. The Veterans Administration insures, but does not fund these loans. Qualifying criteria and down-payment requirements is less stringent than conventional loans.

There aren't quite as many loan programs as there are borrowers, but it seems like it sometimes! We'll work with you to qualify you for the best loan program to fit your needs.

Back to Learning Center