Important Information about Interest-Only and Reduced Documentation Mortgages

Fixed-Rate Mortgages
A fixed-rate mortgage means the interest rate and principal payments remain the same for the entire life of the loan. (Taxes, of course, may change.)

Advantages: Consistent principal and interest payments make this loan stable your rate won’t change, so you don’t need to worry about market fluctuations. A good choice if you’re likely to stay in this house for a long time.

Disadvantages: May cost you more — these loans are usually priced higher than an adjustable-rate mortgage. Keep in mind that, on average, most people move or refinance within seven years. If rates in the current market are high, you’re likely to get a better price with an adjustable-rate loan.

Types of Fixed-Rate Mortgages
40 Year Fixed-Rate Mortgage »
30 Year Fixed-Rate Mortgage »
20 Year Fixed-Rate Mortgage »
15 Year Fixed-Rate Mortgage »

Interest Only Fixed-Rate Mortgages
With a Fixed Interest Only product, the interest rate remains fixed for the life of the loan (either 30, 35 or 40 years). During the first 5, 10 or 15 years, you will make monthly payments of interest only on the principal balance. You will not reduce your principal balance during the first 5, 10 or 15 years of the loan. Starting in the 6th, 11th or 16th year of the loan, you will make monthly payments of principal and interest in an amount sufficient to completely repay the unpaid principal balance, at the current interest rate, over the remaining term of the loan

Adjustable-Rate Mortgages
An adjustable-rate mortgage (ARM) means that the interest rate changes over the life of the loan — according to the terms specified in advance. With ARMs:
  • The initial interest rate is usually lower than with a fixed-rate mortgage.
  • The monthly repayment would also be lower.
  • The interest rate may be adjusted (up or down) at predetermined times.
  • The monthly payment will then increase or decrease.
  • Most ARM programs do offer "rate cap" protection, which limits the amount the rate can be increased, both each year and over the life of the loan.
  • All ARMs are amortized over 30 years.
Advantages: ARMs are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. If interest rates go down, you’ll enjoy lower payments. Usually an ARM is the best choice for homeowners who plan to relocate (for example, with their company or the military), or for those who are purchasing their first home and plan to be in the property only for three to five years. Remember that, on average, most people move or refinance within seven years.

Disadvantages: Your monthly payments can increase if interest rates go up. Keep in mind that ARMs are best for homeowners who aren't planning on staying with a property for a long period. If you’re on a fixed income, an ARM (especially a short-term ARM) may not be your best choice.

Types of Adjustable-Rate Mortgages
3/1 Adjustable-Rate Mortgage »
5/1 Adjustable-Rate Mortgage »
7/1 Adjustable-Rate Mortgage »
10/1 Adjustable-Rate Mortgage »
3/1 Interest Only Adjustable-Rate Mortgage »
5/1 Interest Only Adjustable-Rate Mortgage »
7/1 Interest Only Adjustable-Rate Mortgage »
10/1 Interest Only Adjustable-Rate Mortgage »

Adjustable-Rate Mortgage Disclosures
Type of Product
 Adjustable Rate Disclosures
3/1 Year P&I ARMs
5/1 Year P&I ARMs
7/1 Year P&I ARMs
10/1 Year P&I ARMs
3/1 Year Interest Only P&I ARMs
5/1 Year Interest Only P&I ARMs
7/1 Year Interest Only P&I ARMs
10/1 Year Interest Only P&I ARMs


Consumer Handbook on Adjustable Rate Mortgages
Interest-Only Mortgage Payments and Payment Option ARMS - Are They for You?

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