What Are the Term Lengths of FHA 203(k) Loans?

Like other FHA loans, 203(k) loans can be either fixed rate or they can be adjustable. Both offer unique pros and cons.

Fixed Rate FHA Loans

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Fixed rate loans are the most common in the mortgage industry for a number of reasons. One of those is that it allows homeowners to plan precisely for their mortgage costs. You’ll pay the same amount every month for the duration of the loan. Your interest rate will also be locked in at the beginning of the loan. The most common terms for fixed rate FHA loans are:

  • 30-Year Loans: These are far more common than shorter term loans because the monthly payments are lower. However, because the term is longer, it means that you ultimately end up paying more for the home over time than with a shorter-term loan.

  • 15-Year Loans: 15-year loans are not as common as 30-year loans, but they are frequently used. They offer higher monthly payments, but often come with lower interest rates and faster payoff times, as well as a lower overall cost for your loan.

  • Additional Fixed Rates: 30-year and 15-year loans are the most common, but some lenders may offer different loan terms for fixed rate options. The FHA’s only real requirement here is that the loan must be 30 years or shorter.

Adjustable Rate FHA Loans

Adjustable rate loans are less popular than fixed-rate loans primarily because they can change over time. While the number of times a mortgage can rise and fall, and the maximum amount if can change from what it was set at, are both limited, it can lead to a lot of ambiguity.

Of course, adjustable rate mortgages offer some advantages over fixed rate loans. For instance, if you purchased your home when interest rates were higher, and they declined over time, it would be possible that your loan payment would drop when the interest rate lowered. Of course, the opposite is true, and you could find yourself paying more each month. This is of particular importance currently, as the Fed has already raised the national interest rate three times in 2018, with a fourth scheduled for the end of the year.