Choices and More Choices...

Gone are the days when the only kind of mortgage available was a 30-year fixed-rate loan. Today, there are a wide variety of mortgage programs to choose from. One of the first choices you'll face when picking a mortgage program is between a fixed-rate and an adjustable-rate mortgage. Both have their own unique advantages and disadvantages.

As the name implies, with a fixed-rate mortgage, the interest rate remains fixed for the life of the loan.

Some advantages of a fixed-rate mortgage:

• Offers predictable monthly payments for the duration of the loan

• Provides protection from rising interest rates. No matter how much market rates increase, your interest rate remains fixed.

Some disadvantages to this type of mortgage are:

• It may be more difficult to qualify for a given loan amount, since the interest rate is higher.

• If interest rates drop significantly, you will need to refinance to take advantage of the new, lower rates.

• Fixed-rate loans are generally a good choice for borrowers who plan to stay in their homes for a long period of time or have a lower tolerance for financial risk.

On the other hand, if you plan to stay in your home for a shorter period of time or believe interest rates will go down in the future, an adjustable-rate mortgage, with its lower start rate, may make better financial sense. With an adjustable-rate mortgage, or 'ARM', the interest rate fluctuates with changes in market conditions. Many adjustable-rate mortgages have interest-rate 'caps' that limit how much the interest rate can change within a particular period.

Some advantages of an adjustable-rate mortgage:

• The initial, or introductory, rates for adjustable-rate mortgages are generally lower than those for fixed-rate mortgages.

• Some ARM's offer one of the major advantages of a fixed-rate mortgage, by allowing you to lock in the low, introductory rate for several years before any adjustment takes place. For example, some lenders offer 10-year ARM's, which have a lower start rate than a 30-year fixed-rate mortgage, but which do not adjust until the 11th year.

• Because of the lower start rate, borrowers may qualify for a larger loan amount, and therefore, a more expensive home, than with a fixed-rate mortgage.

Some disadvantages to an adjustable-rate mortgage are:

• Although most ARM's have interest rate caps that will protect you from sudden increases in your interest rate, if market rates go up, your payment will likely go up also.

• If your interest rate - and payment - increase enough, your home could be unaffordable.

• Adjustable-rate mortgages are often a good choice for borrowers who think they may want to sell or refinance early, expect their earnings to increase in the future, or are looking to purchase a home when interest rates are relatively high.

Jumbo loans. Jumbo loans are loans which exceed a specific loan amount, known as the "conforming loan limit". Currently, loans over $333,700 ($500,550 in Alaska and Hawaii) for a single-family home, are considered jumbo loans. Jumbo loans typically require larger down payments, and have somewhat higher rates than "conforming", or non-jumbo, loans.

Alternative financing. Special mortgage programs exist for borrowers with less-than-perfect credit, or for whom documenting their income may be particularly difficult or burdensome. For example, so-called "no documentation" loans may permit borrowers who are self-employed or who work on commission to qualify for a loan based solely on their credit history and stated income.

Although the breadth of mortgage options may appear daunting, a good loan officer can help you sort through the options and select the mortgage program best suited for your particular situation.