Mortgages
Northwestern Mortgage Products
Fixed Rate Mortgages
Fixed-rate mortgages are the most common and most popular type of mortgage loan and provide a level principal and interest payment for the life of the loan.
Your monthly payment is more stable with a fixed-rate mortgage than with other types of mortgages-because the interest rate is fixed for as long as you have the loan. With a standard fixed-rate mortgage, your monthly payment of principal and interest does not change over the life of the loan. Your total monthly payment can change if it also includes property taxes and insurance (e.g., homeowners, hazard, flood or mortgage insurance), which may increase or decrease.
Fixed-rate mortgages are available for various repayment periods: 40 years, 30 years, 20 years, and 15 years are the most common loan terms. Typically, the shorter the term, the less interest you pay over the life of the loan. For example, with a 20-year term on a loan amount of $100,000 at a 6.5% interest rate, you save roughly $48,000 in interest costs compared to a 30-year term loan with the same loan amount and interest rate.
However, the longer the term, the lower the monthly payment because you stretch out repayment of the loan principal over a longer period of time. For example, the monthly payment on a 30-year term loan of $100,000 at a 6.5% interest rate is roughly $632 versus a monthly payment of roughly $745 for the same loan with a 20-year term.
Interest rate is fixed for the life of the loan.
- Monthly payments of principal and interest are the same for the life of the loan.
- The loan is usually fully amortized so it is completely repaid at the end of the loan term (most of the monthly payment is applied to interest in the early life of the loan and to principal later as the loan is paid down).
- Available for 40 years, 30-year, 20-year, 15-year, and 10-year repayment periods.
Considerations
- Stable, predictable monthly payments.
- A fixed interest rate may be important to you if you expect to live in your home for many years or if interest rates are low.
- You can choose from various repayment periods, depending on whether you want to pay your loan off faster (and save significant interest costs) or stretch your payments over a longer term for a lower monthly payment.
Adjustable Rate Mortgages
An adjustable-rate mortgage (ARM) has an interest rate that can change during the life of the loan, with the possibility of both increases and decreases to the interest rate and the amount of the monthly mortgage payment.
ARM interest rates generally remain fixed during an initial period, after which rates adjust periodically-typically, annually, semi-annually, or monthly according to an index and a margin, each of which is specified in the related mortgage note. Rates are typically capped in terms of the size of the rate adjustment at the first change date (initial cap) and/or subsequent change dates (periodic cap) and the maximum rate over the life of the loan (life-of-loan cap).
Hybrid ARMs, also known as fixed-period ARMs, have fixed rates for a designated number of years (e.g., 3, 5, 7, or 10 years), after which the loan adjusts on a regular periodic basis as set forth in the related mortgage note. Hybrid ARMs have become more common over the last few years.
Loan Features
- The most common types of ARMs include:
1/1 (adjusts annually)
3/1 (fixed for three years, adjusts annually thereafter)
5/1 (fixed for five years, adjusts annually thereafter)
7/1 (fixed for seven years, adjusts annually thereafter); and
10/1 (fixed for ten years, adjusts annually thereafter). - Changes to the interest rate are limited by initial rate caps, periodic rate caps, and life-of-loan rate caps (each as described above).
- Adjustments are computed by adding a specified index value to the margin specified in the mortgage note.
Considerations
- Lower interest payments in the short-run compared to comparable fixed-rate loans. Because ARM rates are typically lower than rates for 30-year fixed rate mortgages, monthly payments are generally lower initially.
- Your rate and payment may increase, or decrease, during the term of the loan.
Interest-Only Mortgage
An Interest-Only Mortgage (I/O) is a mortgage loan that offers you the opportunity to make lower, interest only monthly payments for a set period of time. Once the I/O period is over, the monthly payments change to include principal as well as interest to fully amortize the loan.
Interest Only Fixed Rate
With the Interest Only Fixed-Rate Mortgage, you pay only the interest due each month for the first 10 years. Principal payments are allowed without penalty and, if made during the interest-only period, will be reflected in a reduced interest payment due in the next monthly payment made during the interest-only period.
This mortgage may be ideal if you want the stability of a fixed rate over the entire life of the loan, but with lower monthly payments than a standard 30-year mortgage during the interest-only period. For example, with a 30-year fixed-rate Interest Only loan at 8% on a loan amount of $200,000, the monthly interest-only payment during the first 15 years is approximately $134 lower than the monthly principal and interest payment for a fully amortizing 30-year fixed rate product at 8% on the same loan amount. You choose how to use the monthly cash flow difference each month: you can invest in other financial products, pay down the principal balance of the loan and reduce subsequent monthly payments, or pay down other debt. In short, you have greater control over your cash flow.
If you expect to be in your home for less than 10 years, you may want to consider an Interest Only Fixed-Period Adjustable Rate Mortgage, which has payments based on a low, fixed rate for the first 5, 7, or 10 years, after which the interest rate adjusts annually and you make fully amortizing payments.
Loan Features
- Interest-only payments are required for the first 10 years of the loan.
- Monthly payments increase after 10 years to include repayment of principal as well as interest.
- The loan is fully amortized over the remaining 20 years and is thus repaid at the end of the entire 30-year term.
Considerations
- The Interest Only Mortgage offers lower monthly payments during the interest-only period than a standard 30-year fixed-rate loan.
- By making a lower payment, you have greater control over your cash flow and can use or invest the difference as you choose.
- Payments after the interest-only period may be more than would be the case with a typical fixed-rate loan.
Rural Housing Loans
For those who are looking to purchase a home in a "rural" area with little or no down payment, Section 502 Guaranteed Rural Housing Service loans may be an option.
Loan Features
- Fixed-rate loan with a 30-year repayment period
- No down payment required for low- and moderate-income buyers.
- No cash reserves required after closing
- For Guaranteed loans, the borrower's income must be at or below 115 percent of area median income (RHS makes available local income information, adjusted for family size). Borrowers assisted by the program cannot be eligible for conventional financing.
- Eligibility is limited to rural areas. Generally, "rural areas" include settled places having a population not in excess of 10,000, or not in excess of 20,000 if outside any Metropolitan Statistical Area (MSA). RHS State Directors maintain information on qualified areas within their states.
- Eligible properties include single-family, non-farm, owner-occupied principal residences, including condominiums, planned unit developments, and new manufactured housing units.
Considerations
- Can provide up to 100 percent financing for low- and moderate-income applicants
- You need less cash up-front than you would for an FHA-insured loan.
MSHDA Loan (Michigan Housing Development Authority)
Fixed rate loan program that offers below market interest rates for low and moderate income buyers.
Loan Features
- Fixed-rate loan with a 30-year repayment period
- Low down payment required for low- and moderate-income buyers.
- Down payment assistance is available for closing costs to qualified borrowers.
- No cash reserves required after closing
- Eligible properties include single-family, non-farm, owner-occupied principal residences, including condominiums, planned unit developments, and new or existing manufactured housing units.
Considerations
- Can provide up to 97 percent financing for low- and moderate-income applicants
- Can provide up to 100 percent financing when combined with an RD guaranty
FHA Loan (Federal Housing Administration)
Fixed rate loan program for borrowers who need flexible credit guidelines and have little or no down payment
Loan Features
- Fixed-rate loan with a 30-year repayment period
- 3% down payment required (may be gifted)
- Flexible credit and approval criteria
- No cash reserves required after closing
- Eligible properties include single-family, non-farm, owner-occupied principal residences, including condominiums, planned unit developments, and new or existing manufactured housing units.
Considerations
- Can provide up to 97 percent financing for low- and moderate-income applicants
- Can provide up to 100 percent financing when combined with a gift
Jumbo Loans
Loan program for borrowers who desire financing above the conforming loan limit of $417,000.
Loan Features
- Choice of fixed or adjustable interest rates.
- The loan is usually fully amortized so it is completely repaid at the end of the loan term (most of the monthly payment is applied to interest in the early life of the loan and to principal later as the loan is paid down). Available for 30-year and 15-year repayment periods.
Considerations
- Stable, predictable monthly payments with a fixed rate mortgage.
- A fixed interest rate may be important to you if you expect to live in your home for many years or if interest rates are low.
- When using an adjustable rate mortgage, your rate and payment may increase or decrease during the term of the loan.
Construction Loans
Flexible loan programs for borrowers considering building a new home.
Northwestern Bank provides a number of construction loan programs tailored to meet your needs. We offer competitive rates and flexible terms with single note closings to cover both the construction and permanent phase of your mortgage.
Loan Features
- Choice of fixed or adjustable interest rates.
- Adjustable rate can be modified to a Fixed rate at end of construction
- Up to 18 months to build with interest only payments
- Self build programs available
- Financing for up to 95% of the appraised value or cost of your home
Considerations
- Stable, predictable monthly payments with the fixed rate program
- When using an adjustable rate mortgage, your rate and payment may increase or decrease during the permanent phase of the loan.