When shopping for a mortgage loan in New Jersey, you have a lot of options. The key is to make an informed decision — and we can help! This is the first in a two-part series that explains the different types of mortgage loans in New Jersey. It examines the key differences between fixed and adjustable-rate loans.
Types of Mortgage Loans in New Jersey
One of your primary choices has to do with the rate structure on your loan. You can choose to have a fixed-rate mortgage with an interest rate that remains the same over time, or an adjustable-rate mortgage that can change or “reset” over time. Its important to select a mortgage program that meets your financial goals and objectives. Here are the key differences between a fixed and adjustable:
Fixed-Rate Loans Offer Long-Term Predictability
A fixed-rate mortgage loan (FRM) has an interest rate that stays the same for the entire repayment term. The rate you receive when you first take out the loan is the rate you will keep for as long as you hold onto it.
Payment stability and predictability are the primary advantages with this type of New Jersey mortgage loan.
Fixed-rate loans come with different term lengths, with 15 and 30-year being the most popular. The 30-year fixed mortgage, in particular, is the most popular financing option among home buyers in New Jersey and nationwide. Many borrowers prefer this option because it offers a degree of certainty, and it reduces the monthly payments by spreading them out over a longer period.
ARM Loans Can Be a Money Saver
An adjustable-rate mortgage (ARM) loan lives up to its name because the interest rate can change over time. Depending on market conditions at the time of adjustment, the rate might go up or down.
Most of the ARM loans offered today are referred to as “hybrid” mortgage products. They start off with a fixed interest rate for a certain period of time, after which it will begin to change annually.
It’s easy to understand why someone would choose a New Jersey mortgage loan with a fixed interest rate. They offer predictability over the long term, and many home buyers find that appealing. But what about the adjustable types of mortgage loans? Why would anyone want to use an ARM loan when buying a home in New Jersey?
The answer has to do with the initial rate assigned to the ARM, as they are typically among the lowest rates available to borrowers.
Generally speaking, adjustable-rate mortgage loans in New Jersey start off with lower rates than their longer-term fixed counterparts. Some home buyers in New Jersey choose ARM loans for this very reason, as a way to save money during the first few years of the repayment term.
This will make more sense if we look at some actual numbers. Here are the average mortgage rates (nationwide) reported by Freddie Mac on October 12, 2017:
- 30-year fixed-rate mortgage: 3.91%
- 15-year fixed: 3.21%
- 5/1 ARM loan: 3.16%
As you can see from this example, borrowers who choose an adjustable type of mortgage loan in New Jersey have an opportunity to secure a lower rate and thereby reduce their monthly payments. But it’s important to understand that the rate can change, once the initial period has passed.
Some home buyers who use ARM loans do so with the intention of either selling or refinancing before the first adjustment comes along. In many cases, it’s possible to refinance out of an ARM and into a fixed-rate mortgage at a later date. So that’s something to consider as well.
Let’s explore your options. NJ Lenders Corp. can review your financial situation and mortgage goals to help you choose a home loan that works best for you. Please contact us if you have any financing-related questions, or if you would like to receive a cost estimate on any of the New Jersey home loan types mentioned above.