Every Monday Morning at 8:15am, join me on my Facebook page as I sit down with a local lender, and do a live interview and talk about a Mortgage Tip that may help YOU with your next Real Estate Purchase.
This morning I sat down with Barb Adelaine from BankStar. Listen to Barb explain the difference between adjustable, fixed, and balloon rates. You can reach Barb at 605.696.8562 or email@example.com. Her office is located at 1301 6th St., Brookings SD 57006 or on the web at www.ebankstar.com
The Difference Between Fixed, Adjustable, and Balloon Rates
- Hey, everybody, good mornin'. Shane here, from the Brookings Home Team, powered by Century 21, and I've got Barb here from Bank Star this morning. And this gorgeous clock says it's 8:15, you're welcome Julie, we thought you'd like that, but it is 8:15, which means it's the Monday Morning Mortgage Tip. I hope you all had a great weekend, you're ready for the week, and we're gonna start it out here with Barb this morning and give us a little tip, actually a mortgage tip, this morning, and I'll let you take it over.
- Thanks. I've had a lot of people, since rates have been changing, ask about the differences between a fixed rate an adjustable rate and a balloon, which some people hadn't heard much about. So, to kinda give ya an idea, if you were shopping for a 30-year payment period that you wanna repay your house loan, fixed rate makes your rate the same all the way through that 30 years. You might see a little bit of change if you're escrowing for taxes and insurance as they go up or down, but the principal and interest part of your payment's always gonna stay the same at the rate that you started with. If you get an adjustable rate mortgage, you'll start with one amount, and then there'll be a number, like, they might say this is a 5/5 adjustable rate mortgage. That first number, five, means how many years your rate stays the same, and the second number, sometimes it's a one or a two or a five, is how many years before it changes again. So, in the example of a 5/5 ARM, your rate that you start with is good for the first five years, and then there's gonna be an adjustment. You're gonna have something specific that your rate is tied to. I work with 10-year treasury bills, so a 10-year treasure bill rate is published in The Wall Street Journal, and any rate that a bank offers you would be published publicly somewhere. We take that, and then our adjustments, and this is pretty common, you're guaranteed they won't go up more than 2% from where you started at any change. So, if you started at five, and rates had gone up to 10, you wouldn't go to 10, the most you could go to is seven in that change. And every five years, it could go up or down, depending what treasury bills are doing at that time. Most of the contracts have a ceiling, how high maximum is, and a floor, how low could they go. And you'll want to find out that information, as well. While that might not seem like it's a safe plan, some people feel that way, actually, it's not too bad if rates trend downward. So, you may get in now for a house that you think you will probably get a couple raises by the time that interest rate changes, so it's gonna feel the same to you if the payment's a little bit more later, and then you don't have to worry about you couldn't afford a house. It's not a huge amount, like, you can't buy a castle when you could only afford a cottage, But a little bit, and that little bit can help.
You'll wanna make sure that you visit carefully with your loan people so that you understand what the basis is and when the changes will come. And we'll disclose for you what the minimum amount, which is usually your beginning payment, would be, and if everything just kept going up and up and up the whole life of your loan, what would the maximum payment be. So, we not only talk about rate, but we talk about what your payments will be, as well, so that you're comfortable if you choose that. And it's becoming more and more popular in the current environment.
-Another kind of a loan that people are talking about are balloon loans, and those are often, feel temporary in nature. So, for instance, at my bank, we offer a five-year balloon, it's actually 65 months, so just a smidge over five years. When you get that, it's a fixed rate. It can be amortized, so your payment's like a 30-year loan, but at the 65th month, whatever is left, you need to do something, a refinance or something, at that point to change it to a different kind of loan. So, the people who are looking at those are people who maybe have a little bit of a credit issue, maybe only one of them can be on a loan at this time, but, by a few years, they'll be able to have two people on their loan, and that will help them with some ratios. There's lots of reasons why you might choose a balloon loan and know you're going to do something new at about that five-year mark. So, those are three different options. Of course, there are lots of 30-year fixed rate options and 15-year fixed rate options when you get lookin' at those, but I wanted to contrast those three different kinds and how they work.
- Perfect. Can you repeat that, so, in case they missed anything? That's a lot of information for you guys, and the best thing to do is to come in and talk to Barb here and just give her a call
- Love to.
- and she'll go over it in a lot more detail for you. But, yeah, there's so many different options, and one that fits one person might not fit another person. And just best to come in, talk with her, and see what is available. As usual, I'll have all of her information on the bottom, on the top, or on the sides, wherever your advice allows you to see that. So, feel free to reach out to her. If you have questions for her or myself, for a future episode, please ask 'em below here. Reach out to us, and we'll be sure to answer that on the next one. And also, please share or tag anybody else you think would benefit from this video. We'd be happy to put them in on this process here, as well. So, thanks for watchin', 'preciate it. And be sure to like and follow us on all of our social media stuff, we'd 'preciate that. Until next Monday, we will be hittin' it hard this week, and hopefully doesn't get too cold out yet, too soon. We're not ready for that.
- That's good.
- So, thanks, guys, for watchin'. Have a great week, we'll talk to ya later. See ya.