Choosing a Mortgage

When buying a new home, you’ll be faced with countless options, from how many bedrooms you want to what neighborhood you want to be in. You’ll also need to decide what type of mortgage is right for you. There are many different options, with different terms, from how long you have to pay off your loan to whether your interest rate is fixed or can change. It’s important to understand the differences and benefits of each type of mortgage so you can be sure to choose the loan that best suits your financial needs.

Mortgage Types

Here’s a breakdown of common mortgage options:

Fixed-rate mortgages: You pay the same monthly payment for the entire length of the loan. Fixed-rate mortgages are typically offered with either 30- or 15-year loan terms. A fixed-rate mortgage may be right for you if you:

  • like the stability of making the same mortgage payment every month
  • plan to stay in your home for a long time
  • expect interest rates to rise in the future

Adjustable-rate mortgages (ARMs): With ARMs (also called variable-rate mortgages), the interest rate increases or decreases at a set time, depending on what is happening with market interest rates. As a result, your monthly mortgage payments may go up or down. ARMs usually feature a low initial interest rate that is fixed for a period of time, anywhere from two to 10 years. After that, the rate, and therefore your mortgage payment, may fluctuate at defined intervals for the remainder of the loan. An ARM may be right for you if you:

  • need a larger loan amount but want to keep your monthly payments lower
  • expect interest rates to decrease in the future
  • plan to move within five to 10 years
  • expect your income to increase
  • are able to make a 5% down payment (some lenders require 20%)

100% financing: Some lenders, including Navy Federal, offer 100% financing options* for qualified homebuyers. With this loan, you don’t have to make a down payment. These types of loans have a fixed-interest rate at Navy Federal.

This loan may be right for you if you:

  • don’t have money saved for a down payment
  • are a first-time homebuyer
  • prefer a fixed-rate loan

VA loan: This type of loan is available for eligible servicemembers. With a VA loan, you don’t have to make a down payment or pay private mortgage insurance (PMI), which is a fee typically charged to protect lenders from loan defaults. Your closing costs are also limited. A VA loan may be right for you if you:

  • are an eligible servicemember or unmarried surviving spouse
  • don’t have money saved for a down payment
  • want to avoid paying PMI
  • want lower closing costs
  • are looking for a loan with a lower interest rate
  • hope to pay off your mortgage early without incurring a penalty fee

*Navy Federal 100% financing loans include an additional funding fee, which may be financed up to the maximum loan amount. Available for purchase loans only. Product features subject to approval.

Fixed vs. ARM:

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