If you plan to purchase or refinance a home in Pleasanton, or if you are looking for a home equity loan, you have several options available to you.
Fixed Rate Home Loans
One common type of home loan is a fixed rate home loan. Basically, you pay a constant interest rate over the life of the loan. Right now, interest rates are low, so fixed rate home loans are an attractive option. Fixed rate home loans usually have a term, or lifespan, of fifteen to thirty years. Since the interest rate is constant, your house payment remains constant over the life of the loan too.
Any type of home loan can have a fixed interest rate—a home purchase loan, refinance, or home equity loan.
Adjustable Rate Mortgages
Adjustable rate mortgages are also called ARMs. They have a variable interest rate that responds to changes in the prime lending rate. ARMs are a bit of a gamble; you are betting that interest rates will decrease and that your interest and house payment will decrease as well.
It is common to have an ARM for a home purchase loan or a refinance, but not a home equity loan. Home equity loans usually have a shorter term and a fixed interest rate.
Hybrid Loans
Hybrid loans combine fixed rate and adjustable rate loans. Most hybrid loans have a fixed rate loan first, and the interest rate may even be below market. During this period of the loan, your house payments are relatively low and they remain constant. At some point, however, the second part of the loan takes effect, and you convert to an ARM. Your interest rate and house payment will increase at that point, and they will be adjusted at regular intervals thereafter.
Hybrid loans are designed to make it possible to buy a home now, before home prices get any higher. It is assumed that your income will increase and that you will be able to afford the payments when your loan converts to an adjustable rate.
You can take advantage of a hybrid loan in a couple of other ways, too. If you do not have a huge prepayment penalty, you can pay down your principle rapidly while the interest rate is low. You can also refinance the loan before it converts to an ARM. There may be prepayment penalties if you do, though.
Jumbo Loans and Other Options
Fannie Mae and Freddie Mac help ensure that money is available for home ownership by buying mortgages from lenders or by securing them. They will only buy mortgages that are less than a set amount, currently a little over $400,000. If you have a mortgage that is higher than that it is called a Jumbo Mortgage, and you will probably pay a slightly higher interest rate on it. Jumbo loans are just big loans, and you have the same options you have with smaller loans and sometimes even a few more.
You may be able to get an “interest only” Jumbo loan. This kind of loan has a fairly short term, usually about ten years. During the term of the loan, your minimum monthly payment is equal to the interest due that month; you are not required to pay anything on the principle. You may, however, pay as much as you want on the principle without incurring any fees or penalties. At the end of the loan’s term, the remaining principle is due as a balloon payment.
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