Because the interest rate is not locked in, the monthly payment for this type of loan will change over the life of the loan. Most ARMs have a limit or cap on how much the interest rate may fluctuate, as well as how often it can be changed. When the rate goes up or down, the lender recalculates your monthly payment so that you’ll make equal payments until the next rate adjustment occurs.
Buying a home with a mortgage is probably the largest financial transaction you will enter into. Typically, a bank or mortgage lender will finance 80% of the price of the home, and you agree to pay it back – with interest – over a specific period. As you are comparing lenders, mortgage rates and options, it’s helpful to understand how interest accrues each month and is paid.

Amortization is what you are actually paying per year against your loan. You can get a mortgage with a term of 10, 15 or 30 years. You pay each month and the principal decreases until it’s paid off. The payments don’t change but at the beginning of the term, most of the payment is going toward interest. By the end of the term, that’s flipped and you’ll be paying down the mortgage principal.
Conventional loans require a home buyer to make a 20 percent down payment and many home buyers don’t have enough cash on hand to make that down payment therefore they are required to pay for mortgage insurance as part of their monthly payment. This insurance protects lenders if a borrower should default on the loan. Until late 2014, Fannie Mae and Freddie Mac required down payments of at least 10 percent. This requirement pushed many home buyers into Federal Housing Administration loans or FHA loans, which have a 3.5 percent minimum down payment. The problem is that FHA premiums are costlier than private mortgage insurance. But in 2015, qualified buyers will be able to get Fannie and Freddie backed mortgages with down payments as little as 3 percent. These premiums will be dependent on credit scores and the size of the down payment. Private mortgage insurance premiums are generally more affordable than FHA premiums.

The programs vary in what they can offer. In some cases direct financial assistance may be provided to help you pay your mortgage for a short period of time. Payment plans or reduced monthly payments may be offered. However most of the government programs and non-profit organizations will help facilitate some form of loan modification to qualified homeowners. This will provide families time to get back on track by ideally lowering their monthly payment, reducing interest rates or waiving fees.

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