About Mortgage Options

Fixed Rate Mortgage

A Fixed-Rate Mortgage features payments that remain constant throughout the life of the home loan.  The interest rate and other terms are fixed and do not change.  Among other factors, the interest rate on this type of mortgage does not change but it is important to consider the term of the loan.  The shorter the term, the faster equity can be built.  In contrast, the longer the term, the lower monthly payments will be. To determine if a Fixed Rate Mortgage is right for you, please consider the pros and cons:

Pros

  • Consistent interest rate and monthly payments. Payments may change based on escrow changes for property taxes and insurance.
  • Choice of term options, including 10, 15, 20, 25, and 30-year options.
  • A good choice for people who will own their home long-term.
  • A good choice for people who want to minimize risk.

Cons

  • May not be a good choice when expected time of home ownership is short.
  • Higher rate compared to Adjustable Rate Mortgage, because the lender guarantees the rate longer.
  • May not be a good choice for clients with a tolerance for risk, who believe rates will be lower in the future.
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Adjustable Rate Mortgage (ARM)

An Adjustable Rate Mortgage is a mortgage loan where the interest rate on the note is periodically adjusted based on a variety of indices. Among the most common indices, are the 1-year Constant Maturity Treasury (CMT) and the London Interbank Offered Rate (LIBOR). To determine if an Adjustable Rate Mortgage is right for you, consider the pros and cons:

Pros

  • Lower interest rate and monthly payments at inception.
  • A good choice for people who will own their home short-term.
  • A good choice for clients with a high tolerance for risk and who believe rates will be lower in the future.
  • May provide the temporary help needed to afford a more expensive home.

Cons

  • Interest rate can increase over time.
  • Not a good choice when expected home ownership is long-term.
  • Not a good choice for clients with a low tolerance for risk.
  • Not a good choice if the client believes rates will be significantly higher after start period and the client expects to own the property at that time.

The most important basic features of ARMs are:

  • Initial interest rate. This is the beginning interest rate on an ARM.
  • The adjustment period. This is the length of time that the interest rate or loan period on an ARM is scheduled to remain unchanged. The rate is reset at the end of this period, and the monthly loan payment is recalculated.
  • The index rate. Most lenders tie ARM interest rates changes to changes in an index rate. Lenders base ARM rates on a variety of indices, the most common being rates on Treasury securities and LIBOR. Another common index is the national or regional average cost of funds to savings and loan associations.
  • The margin. This is the percentage points that lenders add to the index rate to determine the ARM’s interest rate.
  • Initial discounts. These are interest rate concessions, often used as promotional aids, offered the first year or more of a loan. They reduce the interest rate below the prevailing rate (the index plus the margin).
  • Prepayment. Some agreements may require the buyer to pay special fees or penalties if the ARM is paid off early, however terms are sometimes negotiable.
  • Interest rate caps. These are the limits on how much the interest rate or the monthly payment can be changed at the end of each adjustment period or over the life of the loan.

Here are three common Cap examples:

  1. 5/2/5 (Initial/Periodic/Lifetime) The Initial rate change is capped at 5%, the Periodic adjustments are capped at 2%, and the total Lifetime Cap is 5% from the Start Rate.
  2. 2/6 (Initial/Lifetime) The Initial Rate change is capped at 2% and the total Lifetime Cap is 6% from the Start Rate.  There is no Periodic Cap.
  3. 6 (Lifetime) There are no Initial or Periodic Caps.  The Lifetime Cap is 6% from the Start Rate.
State Licenses

On Q Financial offers home loans for Conventional, VA and USDA financing in the following States: Arizona Lender #BK-0906866 | California Lender #603E172 | Colorado #LMB000021795 | Florida Lender #ML0701235 | Georgia Lender #22050 | Idaho #MBL-6579 | Illinois Lender #MB.6760285 | New Mexico Mortgage Loan Company #03079 | Oregon #MI-4892 | Texas #5645 | Virginia State Corporation Commission #MC-4559 | Washington Lender #CL-5645. On Q Financial provides FHA financing in Arizona, California, Colorado, Texas and Washington.

Disclamier

This web site and the information it contains are provided as a service by On Q Financial, Inc. to assist those who have questions or concerns about purchasing a home and available mortgage products. Our web site has links to sites we feel might be useful to you and which may provide services. When you link to another site, you are no longer on our site and are subject to the privacy policy of the new site. On Q Financial Inc., accepts no responsibility for the content or accessibility of the external websites or external documents linked to on this website. Readers are encouraged to research and verify information contained herein. The information on this website is not intended to substitute for advice from professional credit counselors or legal counsel. On Q Financial, Inc. cannot and does not provide legal advice to members of the public. The listing of an organization does not necessarily represent sponsorship or endorsement of the information or organization by On Q Financial, Inc.