FHA Fixed Rate Mortgage

The FHA Fixed Rate Mortgage program is by far the most common program. Fixed Rate terms may be offered for 30 years, 15 years. Some lenders may even offer 20 and 25 year terms. While the fixed rate mortgage offers the most stability, it may also end up being more expensive than other products. Fixed Rate loans have a higher rate than the Hybrid Adjustable Loans or other regular Adjustable Rate loans.

Since many people do not keep their loan for the entire fixed period, it may be better to look at some of the other programs.

FHA ARM Loans

FHA Adjustable Rate Mortgage Loans are loans in which the interest rate will possibly change at some future date. The FHA Adjustable Rate (ARM) program has the standard 1 Year Arm and also the popular Hybrid Adjustable Rate Programs.

The FHA Adjustable Rate Mortgage (ARM), 1 year ARM loan is one of the best adjustable rate mortgages currently available. It is available 1-4 unit homes, as well as condominiums, townhomes, and PUDs.

One benefit of the FHA Adjustable Rate 1 Year ARM is that it does not offer an initial low "teaser" rate like most other adjustable rate mortgages, therefore it will normally start at a slightly higher rate than most other adjustable loans. Thus you will most likely not have a large first adjustment
The yearly interest can rise or decrease no more than 1% per year vs. 2% for a conventional loan.
The lifetime cap of the FHA adjustable rate mortgage is no more than 5% over the initial start rate vs. 6% for a conventional loan.
Therefore, an FHA ARM can take 5 years before reaching its maximum rate vs. a conventional loan can cap in only 3 years.
FHA's adjustable rate mortgage is based on the economic indicator index called the 1-Yr. T-Bill. You can find the current T-Bill rate on many websites like HSH Associates or in the Wall Street Journal

Index + Margin = Fully Indexed Rate
(current 1 Yr. T-Bill Rate) + (percentage, usually 2.25%) = Interest Rate

Example:
Index=1.3% (as of Oct 2003)+Margin of 2.25%=Fully Indexed Rate=3.55%

Other benefits of the FHA ARM (adjustable rate mortgage) is that you can "streamline refinance" to a FHA fixed rate mortgage at anytime.

Borrowers must qualify for one-year ARMs using the mortgage payments based upon the contract or initial interest rate plus 1 percentage point (i.e., the anticipated maximum second-year interest rate) if the loan-to-value ratio is 95 percent or greater