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30 year fixed mortgage is a type of mortgage loan that is repaid by the
borrower making 360 equal monthly payments over a period of 30 years.
Since the borrower's payments are 'fixed', the borrower can expect to
make the same monthly payment for the entire term of the loan. A 30 year
mortgage loan is the most widely accepted program used to finance a
residential purchase, and is available for conventional, jumbo, FHA and
VA loans. |
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15 year fixed mortgage is a type of mortgage loan that is repaid by the
borrower making 180 equal monthly payments over a period of 15 years.
Since the borrower's payments are 'fixed', the borrower can expect to
make the same monthly payment for the entire term of the loan. A 15 year
mortgage loan is the most widely accepted program used to finance a
residential purchase, and is available for conventional, jumbo, FHA and
VA loans. |
| An Adjustable Rate Mortgage
(ARM) is a mortgage loan that is most widely known for its low starting
interest rate (when compared to the 30 & 15 year mortgage loans).
This 'low' introductory rate is used to calculate the mortgage payment
for a specified period of time. Once this introductory period is over,
the interest rate is adjusted periodically based on a pre-selected index.
The most commonly used index is the yield on the one-year Treasury Bill.
The new interest rate is determined by adding this index to a set margin
(which is determined by the lender). Although there are a variety of
adjustable rate mortgage programs available, the most common program is
the One Year Adjustable Mortgage (one Year ARM), which is available for
conventional, jumbo, FHA and VA loans. The interest rate on the one year
ARM is adjusted once each Year, for 30 years. APR's on variable rate
loans are subject to increase but may decrease from year-to-year, the
borrower should be prepared to handle an increase in his/her monthly
payment (should the index rate increase). |
| A jumbo mortgage is a mortgage
loan which is larger than the limits set by Fannie Mae and Freddie Mac
($240,000 as of 1/1/99). Since these two agencies will not purchase these
types of loans, they usually carry a higher interest rate (to enhance
their value and marketability to investors). |
| An FHA mortgage loan is
insured by the Federal Housing Administration (a division of the
Department of Housing and Urban Development (HUD)). Although mortgage
lenders provide the mortgage funds, the FHA sets underwriting standards
for approving applicants. In many cases, FHA underwriting guidelines are
more lenient than conventional (not government insured or guaranteed)
underwriting guidelines. This leniency makes it easier for borrowers to
qualify for a mortgage loan (low down payment requirements and a higher
monthly debt allowance). FHA limits the types of loan programs it
insures, but it will insure the more popular 30 year fixed, 15 year fixed
and one year adjustable loan programs. However, borrowers are limited to
the amount that they can borrow using an FHA-insured mortgage. Applicable
loan limits differ by county, so contact your local HUD office for
specifics. |
| A VA mortgage loan is a
mortgage loan that is guaranteed by the Department of Veterans Affairs (DVA).
One of the biggest advantages of using a VA loan is that the borrower can
finance the purchase of a property with no-money down. However, VA loans
are restricted to individuals qualified by military service. The DVA will
guarantee the more popular 30 year fixed, 15 year fixed and one year
adjustable loan programs. |
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A
balloon mortgage loan is a type of mortgage loan that has a short term
(typically 5 or 7 years), but the monthly payment is computed using a 30
year term. When a borrower uses a balloon loan, he/she will make the
monthly payment for the scheduled loan term (5 or 7 years). When this
loan term is over, the borrower is required to pay off the remaining
balance in one lump-sum payment. If the borrower decides not to sell the
property after the loan term is over, the borrower has the option to
refinance the mortgage with a new one. A 7/23 balloon mortgage gives the
borrower the option to convert to a fixed rate program (for a nominal
fee) after the initial term (7 years) is over. If the conversion feature
is used, the interest rate for the remaining term of the loan (23 years)
will be adjusted once to reflect market conditions, then remain fixed for
the remainder of the loan term. |
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