Finding a mortgage can be a strenuous process. Not only are there hundreds of institutions offering mortgages, it can seem as though there are dozens of different types of mortgages themselves. Different interest rates, different lengths and other features can be confusing. This article describes some of the different options you may encounter as you shop for a mortgage. As you review your options, keep two thoughts in mind:

  • How long do you expect to live in the home?
  • What is your tolerance for monthly payments increasing?

Fixed Rate Mortgages
As the name implies, with a fixed rate mortgage, the interest rate is set at the time you take out the mortgage and remains constant over the life of the mortgage. The monthly payment level also remains constant. Knowing what your payment will be can be reassuring.

Each monthly payment is comprised of interest and principal with early year payments being primarily interest and payments toward the end of the mortgage being mostly principal. Most of the mortgage pay down comes late in the mortgage period.

Most institutions offer fixed rate mortgages of 30 years and 15 years. The benefit of the shorter 15-year mortgage is that after 15 years you will have paid off the mortgage loan and you own your home free and clear. You will also pay less interest over the life of the mortgage. The negative is that your monthly payments will be higher.

Comparing a 15-year mortgage and a 30-year mortgage with equal interest rates
  15-year mortgage 30-year mortgage
Mortgage amount $150,000 $150,000
Interest rate 6% 6%
Monthly payments $1265.79 $899.33
Total monthly payments over the term of the mortgage $227,840.88 $323,754.89
Total principal paid over the term of the mortgage $150,000.00 $150,000.00
Total interest paid over the term of the mortgage $77,840.88 $173,754.89

Choosing the term of a fixed rate mortgage is usually a function of what level of monthly payments you can afford and how anxious you are to pay off the entire mortgage.

Adjustable Rate Mortgages (ARMs)
With an adjustable rate mortgage, the interest rate and monthly payments can change as interest rates change. The rate is fixed initially and is subject to being reset based on changes in some interest rate benchmark. The big benefit to the borrower is that usually ARMs have interest rates (at least initially) that are lower than the rates on fixed rate mortgages. Sometimes it can even be 1½ to 2½ % less.

There are several features of ARMs that you should evaluate if you are considering this type of mortgage.

  1. Initial rate.
    Be careful if the initial rate seems real low. It could be a "teaser" rate that only lasts for a short time and then the rate is adjusted upward. At a minimum, ask what the rate would be adjusted to if the initial rate ended today.

  2. Benchmark the ARM is pegged to.
    ARM rates are usually tied to some "published" index that reflects the general interest rate market. Usually the ARM rate is adjusted to that benchmark plus some level of margin. Ask the lender how this works and try to get an understanding of how the benchmark rate has changed recently.

  3. The cap.
    Most ARMs have limits on how much the rate can rise in any one year and some ARMs have a limit to what the rate can rise to over the course of the mortgage. Understanding how the caps work will let you know "how bad it can get" if rates rise substantially.

  4. Length of the rate periods.
    When you look at ARMs you may find there are terms like 10/1, 7/1, 4/1 and the like. These refer to how long the initial rate lasts and how often the rate is adjusted after that.

Adjustable rate mortgages are attractive because of their lower initial rate. Your risk is that your rate and monthly payment will rise in the future. If you are comfortable that you can accept an increased payment or if you think you will be moving in a relatively short time, the savings with an ARM can be substantial.

Other Issues

  • Negative amortization.
    Amortization refers to the process of paying down a mortgage. Some lenders offer mortgages with lower monthly payments than what is needed to pay interest and ultimately pay off the mortgage. This means the amount due on your mortgage increases over time. Avoid this type of mortgage.

  • Balloon mortgages.
    Balloon mortgages are similar to fixed rate mortgages with steady monthly payments using a 15 or 30 year amortization. However, with a balloon, the mortgage comes due before the full 15 or 30-year amortization. Most balloon mortgages are for 3 to 7 years. They usually offer lower interest rates than the traditional 15 or 30 year fixed rate mortgage. But, remember that with a balloon, your mortgage will be due on a given date and you will have to do something.

Hot Topics

What is FAIRWINDS' Routing Number?

263181368

What are the 2013 IRA and HSA contribution limits?

Find out here.

When will I receive my 2012 5498 form?

Find out here.

What is a Routing Number?

FAIRWINDS' routing number (263181368) is used to identify FAIRWINDS Credit Union from other financial institutions and in no way identifies you or your accounts to others.

A routing transit number (RTN) is a nine digit bank code, used in the United States, to facilitate the sorting, bundling, and shipment of paper checks back to the drawer's (check writer's) account.

The RTN is also used by Federal Reserve Banks to process Fedwire funds transfers, and by the Automated Clearing House (ACH) to process direct deposits, bill payments, and other such automated transfers.

What can I do with my Relationship Rewards points?

Relationship Rewards provide you the opportunity to enjoy special member benefits including:

  • Buying down the interest rate on a loan.
  • Increasing your rate on a new CD.
  • Reducing service charges on additional products and services.
Learn more about our Relationship Rewards program.

How do I send or receive a wire?

To send a wire from FAIRWINDS, please provide the following:

  • Name, address and routing number of financial institution receiving the wire
  • Account number for the receiving account
  • Name and address of receiving account holder

There is a $20.00 service charge for an outgoing domestic wire from a personal account and a $25.00 service charge for an outgoing wire from a business account.

To receive a wire at the credit union, you will need to provide the following:

  • FAIRWINDS routing number (263-181-368)
  • Name of account holder
  • FAIRWINDS account number to receive the funds

There is a $10.00 service charge for an incoming domestic wire to a personal account and $15.00 service charge for an incoming wire to a business account.

*Please verify this information with the receiving financial institution as there may be an intermediary financial instititution involved.

When should I expect my 5498-ESA tax forms?

5498-ESA tax forms will be mailed by April 30th for all Coverdell Educational Savings Account owners who made contributions and/or rollovers into their ESA's in 2011.

5498 and 5498-SA tax forms will be mailed in mid-May for all Traditional, SEP, and Roth IRA owners and Health Savings Account owners who made contributions and/or rollovers into their IRA's and HSA's in 2011.

For questions regarding the 5498 forms please call Member Services at 407-277-5045 or visit your local branch.

When should I expect my tax forms?

FAIRWINDS mails 1099-INT and 1098 tax forms at the end of January. However, if you have e-Statements, these tax forms are available online right now!
Learn more here.

Members will only receive a 1099-INT form if the aggregate earnings amongst the accounts they are tax reported for (the primary owner) have earned at least $10 in interest.

These accounts include:
Savings, checking, money market, certificates of deposit, and US Bonds Redeemed, but do not include IRA accounts. If members have not earned at least $10 in interest, they will not receive a 1099-INT form.

Members will only receive a 1098 Mortgage Interest Statement if they paid $600 or more in interest on their mortgage.

FAIRWINDS mails 1099-R, 1099-Q, 1099-SA, and FMV/RMD statements to members by January 31st each year. We also mail 5498, 5498-SA, and 5498 ESA forms to members by the end of May.

Important information for all MasterCard® and VISA® credit and debit card holders.

You may have seen news stories recently about a potential data breach with MasterCard® and VISA® through a third-party payment processor. While there is no indication that any FAIRWINDS members have been impacted by this event, it is an opportunity to remind all consumers about the importance of being diligent, safeguarding your personal information and monitoring your accounts on a regular basis to minimize the effects of fraud.

Take the few extra steps to proactively protect your accounts. If you believe your credit or debit card information is at risk or unauthorized transactions have posted to your account, contact your financial institution immediately. In addition, you may want to consider looking into an identity theft alert program to keep you informed of activity on your accounts. There are many reputable programs available, including ID Secure. Click here to learn more.

There is an active texting scam occurring in the Central Florida area.

People are receiving a text at random stating their "card has been deactivated." This is a Scam!

Always remember, FAIRWINDS will never ask members to provide confidential information, such as debit or credit card numbers, PINs or Social Security numbers via email, text messages, direct mail or over the phone.

If you feel you are the victim of account fraud or identify theft, act immediately. This should help minimize the damage to your personal accounts and credit rating. Click here to learn more.

What are the 2013 IRA and HSA contribution limits?

Traditional and Roth IRA owners under age 50 may contribute up to $5,500 toward tax year 2013. A $1,000 catch up contribution may be added for Traditional and Roth IRA owners age 50 and over.

2013 SEP contribution limits have increased to a maximum of $51,000 or 25% of the employee's compensation, whichever is less.

HSA owners under age 55 with an individual HDHP (self coverage only) may contribute up to $3,250 toward tax year 2013. HSA owners under age 55 with a family HDHP may contribute up to $6,450 toward tax year 2013. A $1,000 catch up contribution may be added for HSA owners age 55 and over.

When will I receive my 2012 5498 form?

5498, 5498-SA, and 5498-ESA forms report IRA, HSA, and ESA contributions, rollovers, conversions, and fair market value (December 31st balance) information to the IRS and account owners. 5498 and 5498-SA forms are expected to be mailed by Saturday, May 18th.

Please contact Member Services at (407) 277-5045 or visit your local branch if you have questions about your form(s).

How can I make a prior year (2012) contribution to my IRA or HSA?

Eligible prior year (2012) IRA and HSA contributions may be made through the close of business on Monday, April 15th. The IRS requires signed documentation before contributions may be designated for a prior year.

Members can accomplish this by visiting a local branch during business hours or by submitting an e-Signed form through Retirement Central® and click Manage An Account on the left menu.