A mortgage in which the interest rate does not change during the entire term of the loan.

Fixed-rate mortgages, the most popular type of mortgage, offer the peace of mind that your interest rate will remain the same for as long as you have your loan. If you expect to live in your home for many years, having the same interest rate may be your key concern. If you decide that you like the stable, predictable payments of a fixed-rate loan, you have the option of choosing from a variety of repayment terms: 15, 20, and 30 years are the most common. Typically, the longer the term of the mortgage, the more interest you pay over the life of your loan. However, stretching out your repayment term means your monthly mortgage payments will be less than they would be with a comparable shorter-term mortgage.

Capitol Bank offers a wide array of fixed-rate mortgages:

• 15,20 and 30 Year Term
• Balloon Mortgages

A mortgage in which the borrower's monthly payments are amortized over a longer term than the actual term of the loan. As a result, the borrower must pay off the outstanding balance with a lump sum payment or refinance the loan at the end of the mortgage term.

Example: the Fannie Mae seven-year balloon mortgage is a fixed-rate mortgage with a term of seven years. The principal and interest are amortized over a longer period (30 years) than the actual term of the mortgage. At the end of the balloon period, you may pay off the outstanding balance with a lump-sum payment or exercise the option to refinance for the remaining term.

The option to refinance is conditional, meaning you have to meet certain conditions (such as a history of timely payments or no second liens on your property). Conditions may include payment of closing costs and a lender fee, as well as no 30-day late payments in the previous 12 months and no other liens on your property.) You must occupy your property at the time of refinancing. You need not re-qualify for this loan when refinancing at the end of seven years as long as the new interest rate is not more than five percent above the current interest rate. The refinance condition is not automatic -- you must exercise the option.

Key Features:

• This mortgage is ideal if you plan to sell or refinance your home within seven years and want a low monthly payment during that time.
• The interest rate you pay on a balloon mortgage is usually lower than a comparable 30-year fixed-rate mortgage.
• The refinance option provides a "safety net" in case a planned relocation doesn't take place or economic conditions prevent you from moving to a larger home.

This type of adjustable-rate mortgage (ARM) maintains the same initial interest rate for the first three, five, seven, or 10 years of your loan, depending on the term you choose. Your interest rate then adjusts annually, and can move up or down as market conditions change. Be sure to ask your Capitol Bank loan officer about the interest rate caps for both the annual adjustments and for the life of the loan.

Advantages:

• Your initial interest rate will be lower than a fixed-rate mortgage, so you may be able to afford more home.
• You are protected against interest rate increases for the first three, five, seven, or 10 years of the loan, depending on which type of fixed-period ARM you choose.
• You may have the option to convert your ARM to a fixed-rate mortgage at the first, second, or third interest rate adjustment dates.
• You have time to improve your financial position (i.e., salary increases) or accumulate additional assets before the interest rate adjusts at the end of the fixed period.

Details:

• The lifetime interest rate cap for fixed-period ARMs is typically 5 to 6 percentage points above your initial rate. Your annual cap during the adjustable period is typically 1 to 2 percentage points above or below over the current rate.
• Can be used to buy one- to four-family residences including second homes and condos, co-ops and planned unit developments. Manufactured homes are also eligible. (Manufactured housing units must be built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation.)

A financing option for a fixed-rate mortgage that offers home buyers a 3 percent down payment loan with a term between 15 and 30 years. The mortgage features a loan-to-value (LTV) percentage of 97 percent, and is designed to expand homeownership opportunities for people with modest incomes. Borrowers must take a pre-purchase home-buyer education session to qualify for a Fannie 97 mortgage.

This is a fixed-rate mortgage, with terms between 15 and 30 years. It is suitable for borrowers who have limited funds for their down payment and closing costs.

Advantages:

• Requires a down payment of only 3 percent.
• Provides expanded debt-to-income ratios. For example, you may use up to 33 percent of your gross monthly income for housing expenses each month (instead of the standard 28 percent) and 38 percent for your total monthly debt expenses (instead of standard 36 percent).

Details:

• You must attend a home buyer education session offered or approved by your lender.
• To qualify for this loan, you must earn no more than the area median income.
• You must have one month's mortgage payment, or cash reserve, in your savings account after you go to closing.
• Can be used to buy one-family, principal residences, including condos and planned unit developments. Manufactured homes are also eligible. (Manufactured housing units must be built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation.)

A loan that exceeds mortgage amount limits (Currently $417,000*). Also called a nonconforming loan.

The current loan limit for a single-family home is $417,000.* The maximum amount for any mortgage in Alaska, Hawaii, and the U.S. Virgin Islands is 50 percent higher than our loan limits in the rest of the country.

Generally, any mortgage above this limit is considered a "jumbo loan," and will carry a slightly higher interest rate.

*The loan limit is $533,850 for a two-family home; $645,300 for a three-family home; and $801,950 for a four-family home.
- Major source of content Fannie Mae Glossary