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Mortgage Types
Fixed-Rate
Conventional Mortgage
A conventional loan is a
loan made to a buyer by a commercial lender without a third-party
participant, such as government agencies like Veterans Affairs (VA)
or the Federal Housing Administration (FHA). Fixed-rate
conventional loans are typically paid off in equal monthly payments
spread over 15 or 30 years. The interest rate stays the same
and the principal and interest payment remains constant throughout
the life of the loan.
Adjustable-Rate
Mortgage (ARM; also "variable rate")
The interest rate
adjusts--monthly, every 6 months, or annually. The adjustment
is tied to a financial market index (such as one-year Treasury
bills). Most ARMs set a maximum adjustment (or
"cap") on rates for each year and the life of the loan.
FHA
Loan
These are loans insured by
the FHA (Federal Housing Administration). This insurance
increases lenders' willingness to provide loans to borrowers.
FHA charges an advance mortgage insurance premium (MIP) fee which is
rolled into the loan, as well as a monthly mortgage insurance charge
for all loans. Additionally, there is a limit on the size of
loans they will insure; this limit varies by county. FHA loans
are assumable if the buyers qualify.
VA
Loan
Qualified veterans can
take out loans up to a specific limit with no down payment.
VA-guaranteed loans are fully assumable if the buyers qualify.
VA charges a funding fee at the time of purchase of 2% - 3% of the
loan.
Non-Conventional
Loans
These loans are sometimes
known as B, C, or D. Non-conventional loans may be chosen by
buyers that do not qualify for a conventional product. Most
non-conventional loans have both higher interest rates and a greater
number of discount points. Additionally, they often carry
pre-payment penalties.
Interest
Only Mortgage
The Interest Only Program
is very popular and it is attractive to all levels of purchasers.
The payment is calculated by taking the loan amount, multiplied by
the interest rate, divided by 12 (EX. $150,000 loan amount @ 6.5 =
$9,750.50 / 12 = $812.50 per month payment.) Low payments mean
Buyers can qualify for more house.
The beauty of this product
is that it allows you to control and accelerate the repayment of
your mortgage. Be careful! Although mortgages can be
fixed for a period of time, many of the products adjust monthly and
carry pre-payment penalties.
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