Mortgage Products

Banks in Bermuda do not offer the widest range in terms of mortgage products. Products vary in respect of the term of the loan and the downpayment amount but, in effect, mortgages on offer are typically plain vanilla floating rate or fixed rate mortgages.

Adjustable-Rate Mortgage (ARM)

An adjustable-rate (or floating rate) mortgage usually offers a lower starting rate, so your initial monthly payments on an ARM will be lower than on a fixed-rate loan for the same amount. And because the amount you can borrow is based partly on how much you have to pay each month, you will probably be able to borrow more on a floating rate basis.

Here's how it works:

• The interest rate starts out lower than the rate on a fixed-rate mortgage, then adjusts based on changes to the lender’s Bermuda dollar interest index.
  
• The loan has a term of 10 to 30 years and monthly payments include interest and principal components.
• Typically ARMs are tied to the Bermuda base rate of the lending institution, which tend to change in line with U.S. interest rates. This means your monthly payment will go up and down in line with interest rates.

Keep in mind that the interest rate and monthly payments can increase during the loan term. You may get the most value from an ARM if you’re buying at a time when rates are relatively high. But remember, guessing the direction of interest rates is a difficult thing to do.

Fixed-Rate Mortgage

Long the most popular home financing product in the USA, fixed rate loans allow you to keep the same interest rate and monthly payment for the life of the loan. Still relatively rare in Bermuda.

• Can be a good choice for those who want the security of a set monthly principal and interest payment
• Provide stability, but also usually start at a higher interest rate than a comparable adjustable-rate loan

With an interest rate that never changes, a fixed rate mortgage provides stable, predictable monthly payments throughout the life of the loan. Your monthly payments won’t decrease if market rates go down, but you’ll have the comfort of knowing you are protected if rates go up. Often selected by those who feel confident they won't be moving soon.

If you plan to stay in your home for for the long term, and prefer the security of stable payments to being at the mercy of the market, you may want to ask your lender about a fixed-rate mortgage.