Facts about Online Mortgages

Before you shop for quotes on online mortgages, brush up on the basics here. We’ll explain the two basic types of mortgages and define some key terms to help guide your decision.

Types of Online Mortgages

There are two primary types of online mortgages: fixed-rate and adjustable-rate mortgages (ARM).  Each is explained in detail below.

• Fixed-rate mortgage – among online mortgages, this is the most popular type.  Fixed-rate mortgages offer fixed monthly payments and interest rates for the life of the loan.  Fixed rate mortgages usually have 15-year or 30-year terms.  This type of mortgage is most popular among online mortgages because most consumers don’t like the thought of a house payment fluctuating with interest rates.  Similarly, fixed rate mortgages are also very affordable when interest rates are low.  Fixed rate mortgages may cost more than an ARM initially, but you enjoy the consistency of fixed payments and rates.
• Adjustable-rate mortgage (ARM) – with an ARM, your monthly payment and interest rate will fluctuate according to the market interest rates.  Usually, an ARM begins with an initial fixed-rate period where your rate remains constant.  After this initial period expires, your interest rates will change at the intervals specified in your loan.  An ARM can usually offer a lower initial interest rate than a fixed-rate mortgage could.  This makes them popular for customers looking for the lowest rates on online mortgages.  Similarly, if interest rates are expected to fall in the future, an ARM could also be a wise decision, as your rates will then likely decrease over time. 

Important Terms for Online Mortgages

Here are some of the most important terms you’ll need to know when shopping for online mortgages:

• Discount points – this refers to the opportunity you have to “buy down” your interest rate when closing on your online mortgage.  Typically, each discount point represents 1% of the total loan balance. 
• Insurance – some lenders require you to have mortgage insurance, homeowners insurance, or both.  This will likely be included in your monthly payments, if so.
• Interest rates – this term represents the cost of borrowing.  Interest rates are usually expressed as a percentage of the outstanding balance on the loan.  You will pay your lender interest each month for the convenience of borrowing.
• Fees – common fees for online mortgages include processing, application, and origination fees.  These are costs that you pay up-front on your mortgage.  Sometimes these fees will be expressed as points, which usually represent 1% of the total loan.

Find out what you should know before buying a home on our Things to Know about Homebuying page.