Fixed-rate mortgages. The interest rate remains fixed for the life of the loan. Fixed-rate loans offer predictable monthly payments of principal and interest throughout the life of the loan. They provide protection from rising rates. No matter how high market rates go up, your interest rate stays the same. These mortgages are ideal for most borrowers, especially those who have a lower tolerance for financial risk.
Adjustable-rate mortgages. The interest rate adjusts periodically to reflect market conditions. The initial introductory period usually offers a lower rate relative to fixed-rate mortgages, after which the rate adjusts periodically, based on a market index. Borrowers can be protected from steep increases in rates through annual and lifetime adjustment caps. The initial rate can be locked in for different periods of 1-10 years. Typically, the rate readjusts annually after the introductory period. Because of the introductory period's lower rate, some borrowers may be eligible for a larger loan amount with an ARM than with a fixed-rate mortgage. ARMs can be part of a strategy for home buying in times of high interest rates or if a tacticl refinance is expected shortly after the first year.
FHA Loans. The Federal Housing Administration (FHA) insures loans designed to meet the needs of homebuyers with low or moderate incomes. FHA loans feature low down payments, more liberal qualifying guidelines, and the use of gift funds for down payment and/or closing costs. The size of FHA loans are limited based on your geographical area with maximum loan amounts varying from $271,500 to $729,750 depending on your state and county.
VA Loans. The Department of Veterans Affairs (formerly the Veterans Administration) guarantees mortgages for qualified veterans and active duty military personnel and their spouses who are first- or second-time homebuyers. VA loans feature low or no down payment requirements, a wide range of rate, term, and cost options, flexible qualifying guidelines, and use of gift funds for closing costs. Like FHA loans, VA loan limits vary from state to state with the maximum loans amount typically being either $471,000 or $729,750 (slightly higher in Alaska and Hawaii).
As a Home-Account subscriber we will take into account your qualifications for these loan programs and their limits when making loan recommendations. You don't have to worry which loan is best for your situation. We do that worrying for you.
Fannie Mae, Freddie Mac, and Ginnie Mae Loans. These are like FHA loans in that they have similar underwriting rules though aimed at home buyers with somewhat more money than the target FHA customer. These programs no longer support three percent or even five percent down payments, generally requiring 10 percent down or more. Loan limits are identical to current FHA guidelines. Fannie Mae stands for the Federal National Mortgage Association, founded in 1938. Freddie Mac is the Federal Home Loan Mortgage Corporation, founded in 1970. Both are Government Sponsored Enterprises, private companies founded by the U.S. Government to buy home mortgages and issue securities backed by those mortgages. From the customer home owner perspective there is little difference between these two operations. Ginnie Mae is the Government National Mortgage Association, carved out of Fannie Mae in 1968 specifically to buy FHA, VA and similar special interest group federal mortgages like those of the Rural Housing Service and Office of Public and Indian Housing. Ginnie Mae loan limits are similar to those of Fannie Mae and Freddie Mac. Though these agencies don't directly issue or fund mortgages they control the mortgage industry through the rules they set for what mortgages they are willing to buy.
Jumbo or Non-conforming Loans. A "conforming" loan is a mortgage that is within the lending parameters set by the FHA, Fannie Mae, Freddie Mac, or Ginnie Mae. But not all loans are conforming, mainly because some people want houses that cost more than these quasi-Federal funding guidelines allow. These bigger non-conforming loans are called "jumbo" and typically carry a slightly higher interest rate.
Interest-only Loans. This is not a type of mortgage but more of an option that can be attached to any kind of mortgage. It does not amortize or pay-down the balance of the loan for some period of time. The result is a somewhat lower monthly payments, but usually a slightly higher interest rate since there is higher risk of default. Adjustable Rate Mortgages are a preferred alternative to interest-only in that they tend to have lower initial rates.
Annual Percentage Rate Is important, but TrueRate is even better
There is more to getting a good mortgage than just picking the lowest interest rate. A better number to look at is the Annual Percentage Rate (APR), which is required by law to be displayed for every mortgage offered. While APR is nominally based on the loan rate, it adds-in the other costs and fees to determine your loan's total finance charge expressed as a percentage over the scheduled life of your loan. After you apply for your mortgage, you will receive a Truth-in-Lending Statement. Homebuyers often find this document confusing because it states the APR only, and not the interest rate. Generally speaking, APR is a more honest (and nearly always higher) estimate of what the loan will cost.
Home-Account's TrueRate is a third number you should consider alongside the basic loan rate and APR. TrueRate is the APR adjusted for your particular circumstance and mortgage strategy since some assumptions behind APR calculations apply differently for different borrowers. APR is good, but TrueRate is even better for comparing mortgages.