Which Mortgage is Right for You?
There are a number of different types of home loans available to you, and it can pay to familiarize yourself with them. Luckily we’re here to help you choose the best type of home loan for your needs.
Mortgage Rate Options
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Fix Rate Mortgages
A fixed-rate mortgage is the most popular type of home loan because it offers stability and predictability. With this loan, your monthly principal and interest payments stay the same for the entire loan term, which can range from 10 to 30 years. In most cases, you can pay off your loan early without any penalties.
If your mortgage includes an impound (escrow) account, your total monthly payment may fluctuate slightly over time. This is because, in addition to your principal and interest (P&I), some lenders collect extra funds each month to cover property taxes and homeowners’ insurance. These funds are set aside and used to pay those bills when they’re due. If your taxes or insurance rates change, your total monthly payment will adjust accordingly.
Adjustable Rate Mortgages (ARM)
An Adjustable Rate Mortgage (ARM) is a home loan with an interest rate that can change over time. Typically, an ARM starts with a fixed interest rate for an initial period—ranging from 1 month to 10 years—before adjusting based on market conditions. One of the biggest advantages of an ARM is that the initial interest rate is normally lower than a fixed-rate mortgage, which can help you afford a home at a higher price point.
ARMs are usually structured over 30 years and are based on two key factors:
- Margin – A set percentage (usually between 1.75% and 3.5%) added to the index.
- Index – A financial benchmark that influences the rate, such as the 1-Year Treasury Security, Prime Rate, or COFI.
When it’s time for your ARM to adjust, your new rate is calculated by adding the margin to the index, then rounding to the nearest 1/8%. Adjustments typically happen once a year, but there are built-in protections called rate caps that limit how much your rate can increase.
For example, with a 3/1 ARM (where the rate is fixed for the first 3 years and adjusts annually after that), your loan might have:
- A 2% cap on the first adjustment, meaning your rate can’t jump more than 2% at once.
- A 6% lifetime cap, ensuring your rate never increases more than 6% above your starting rate.
So, if your initial rate is 6.25%, the highest it could go in year four would be 8.25%, and the maximum rate over the life of the loan would be 12.25%.
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Loan Program Options
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Conventional Home Loans
A conventional loan is a home loan offered by a bank, a credit union, or a mortgage company. Because a conventional loan is not insured by the federal government, the lender will typically have its own loan eligibility requirements. Many times, a conventional loan may be sold on the secondary market after the loan closes. For this reason, the lender may require a larger down payment or a higher credit score.
Borrowers are encouraged to review lender requirements and compare conventional loans with other types of loan programs. Typically, the qualification criteria for a conventional loan at Patriot Bank include:
- Minimum credit score of 620
- Debt-to-Income ratio up to 45%
- Down payment of 5% or greater
FHA Home Loans
FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn't issue loans or set interest rates, it just guarantees against default.
FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.
Get answers to questions about FHA Home Loans.
VA Home Loans
The VA Loan provides veterans with a federally guaranteed home loan which requires no down payment. This program was designed to provide housing and assistance for veterans and their families.
The Veterans Administration provides insurance to lenders in the case that you default on a loan. Because the mortgage is guaranteed, lenders will offer a lower interest rate and terms than a conventional home loan. VA home loans are available in all 50 states. A VA loan may also have reduced closing costs and no prepayment penalties.
Additionally there are services that may be offered to veterans in danger of defaulting on their loans. VA home loans are available to military personal that have either served 181 days during peacetime, 90 days during war, or a spouse of serviceman either killed or missing in action.
Get answers to questions about VA Loans.
USDA Home Loans
USDA loans are low-interest mortgages with zero down payments designed for low-income Americans who don't have good enough credit to qualify for traditional mortgages. You must use a USDA loan to buy a home in a designated area that covers several rural and suburban locations.
Jumbo Home Loans
A jumbo loan is a mortgage used to finance properties that are too expensive for a conventional conforming loan. The maximum amount for a conforming loan is $806,500 in most counties, as determined by the Federal Housing Finance Agency (FHFA). Homes that exceed the local conforming loan limit require a jumbo loan.
Also called non-conforming conventional mortgages, jumbo loans are considered riskier for lenders because these loans can’t be guaranteed by Fannie and Freddie, meaning the lender is not protected from losses if a borrower defaults. Jumbo loans are typically available with either a fixed interest rate or an adjustable rate, and they come with a variety of terms.
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