Fixed Rate Mortgage
The most common type of loan program. The interest rate and the monthly payment for principal and interest remain the same for the loan term. This allows you to accurately predict your monthly payments. Fixed-rate mortgages are available for 10, 15, 20, 25 and 30 years. Monthly payments consist of principal, interest, taxes, and insurance and are designed to fully amortize the loan over the term. Pinnacle's fixed rate loans provide competitive interest rates with a number of terms from which to choose.
Adjustable Rate Mortgage Products (ARMs)
The interest rate on these loans is fixed for a specified period of time and then adjusts periodically for the remainder of the loan. An example is a 10/1 ARM; the interest rate is fixed for the first 10 years and then is subject to annual rate adjustments for the remaining 20 years. The adjustments are based on a pre-selected index. The most common indices are US Treasury securities, London Interbank Offered Rate Index (LIBOR) and Cost of Funds Index (COFI).
Due to the increased risk assumed by the borrower (the possible increase in the interest rate), the lender generally offers a lower interest rate for the initial period. In some cases this can help applicants to qualify for a larger loan amount or to save money during the initial period compared to a fixed rate loan. Pinnacle's ARM products include:
1/1 ARM (30 years) The interest rate is subject to adjustment annually.
5/1 ARM (30 years) The interest rate is fixed for the first five years and is then subject to adjustment annually.
7/1 ARM (30 years) The interest rate is fixed for the first seven years and is then subject to adjustment annually.
10/1 ARM (30 years) The interest rate is fixed for the first ten years and is then subject to adjustment annually.
In all cases, the principal is amortized over a 30-year period.
A balloon mortgage loan has a short term, typically 5 or 7 years, at the end of which the remaining principal balance is to be paid in a lump sum. Monthly principal payments during the term are calculated based on a 30-year term. The borrower may decide at the end of the term to refinance the remaining balance with a new mortgage. A 5/25 or a 7/23 convertible loan program provides the option to convert the balloon mortgage after the initial term to a fixed rate mortgage at the prevailing interest rate at the time of conversion.