A mortgage loan is a loan used to buy a home. The home is the collateral for the loan and acts as a guarantee that the loan will be repaid.
There are many mortgage choices available to you. Selecting the right one that fits your needs is important.
Fixed-rate loan. The interest rate is set for the full length of the loan. Because the monthly payment for principal and interest stays the same for the life of the loan, it's easier to plan a budget.
Adjustable-rate loan. An adjustable rate mortgage (ARM) usually starts with a lower initial interest rate than traditional fixed rate loans. After a set initial payment period (usually 1, 3, 5, 7 or 10 years), the interest rate may change periodically based on market conditions. As the rate changes, your monthly payment changes. ARM loans feature an adjustment "cap" which limits how much the interest rate can go up. This helps protect you from large increases in your monthly payment. If you plan on being in your home for a shorter period of time, or expect your income to increase over the years, an ARM loan may be right for you.
Jumbo loans. These are loans for homebuyers who require larger loan amounts. Bank of America offers a variety of jumbo programs for up to $2 million. They are available in both fixed-rate and adjustable-rate mortgages. They generally have slightly higher interest rates because of the amount of money borrowed.
Loans for first-time homebuyers. These affordable financing programs can help make it easier to buy a home since they require little or no money down and offer flexible credit and income guidelines.
Consider how quickly you'd like to repay your loan — within 15 years, 20 years, 25 years, 30 years? Typically, the sooner you repay the loan, the more you'll save in interest payments. However, the longer you extend the term of your financing, the lower your monthly payments may be. When choosing a loan term, consider your budget, your long-term spending patterns, your income over the life of the loan and how long you plan to stay in your home.