Interest Rates: From ARM to VA. What Does it All Mean?
Most of us have experience with interest rates from credit cards or student loans. When you start to look for home loans, the many systems for interest rates start to multiply. Let’s go over each one, weigh the benefits and risks, so you can decide which interest rate is best for you.
1. FHA Rates
Backed by the government, this requires an approximate 3.5% downpayment
, includes the closing costs and has lower rates. You may be able to find comparable rates with a normal bank, or even lower. Shop around, as banks receive commission when issuing this loan. Usually, this loan has be to used for mortgages on homes in specific areas.
2. VA Rates
Like FHA, these are backed by the government, but is reserved for Veterans. There is no down payment required for this loan, but you may see a bit higher interest rates. Also, like FHA, banks get a commission on issuing these loans, so be sure to check around.
3. Assumable Interest
These are very rare, and typically have rates that are pretty low. But, because they are adjustable, there’s always a risk that you may be paying more in the long run. You should know what they are, but don't get into a system like this unless you love taking risks.
4. Convertible ARM Interest
This adjustable rate mortgage (ARM) get changed to fixed rates after a set amount of time is up. Saves on refinancing, but guarantees a higher interest rate. You’re likely better off just refinancing on a regular ARM
, versus using this route.
5. Fixed-Rate Interest
Interest does not waver over the lifetime of the loan. This is what most people choose, as they don’t want to gamble with their future income. Enjoy the same payments each month, until the loan is paid off. Best for people who plan on staying in their homes for more than 15 years.
Each type of interest rate has it's own set of benefits and downfalls. Explore the right one for you before you sign any mortgage contracts. Good luck on the home buyer's journey.