| Fixed-Rate Mortgage |
| A Fixed Rate Mortgage charges the same percentage
rate of interest over the entire term of the loan (usually 10, 15, 20, or 30 years).
Home owners repay the loan with a fixed, monthly installment of principal and interest. |
| Adjustable-Rate Mortgage (ARM) |
| An Adjustable Rate Mortgage have interest rates that flucuate and
are tied to one-year Treasury bills or a specific financial index. The intial interest rate is usually
low, and then the rate bumps up between one and two points per year. There usually is a yearly cap or
ceiling of two points, and the loan also has lifetime ceiling cap of a specified amount, for example six points. |
| Two-Step Mortgages |
| A two-step mortgage is a mortgage that come in two different
types. The first type is a convertible two-step which converts the loan to a fixed rate loan after
a specified number of years. The second type is a non-convertible two-step which converts the loan
to an ARM loan. Usually these types of loans are called 5/25s or 7/23's. The 5/25 is a thirty-year
loan that has a fixed interest rate for the first five years of the loan and then adjusts into a convertible
or unconvertible loan as described above. The 7/23 is a similar 30 year loan that adjusts after seven
years rather than five. |
| FHA Mortgage |
| An FHA mortgage is a "first-time home buyer's
mortgage". It requires a much smaller down payment than conventional loans. Home buyers usually
only have to put five percent down instead of the preferred twenty percent most lenders require. The
amount that you can borrow usually has a maximum limit that can change on a yearly basis and can vary depending
on where you live. Also, a high mortgage insurance premium and other upfront costs usually are characteristic
of this type of loan. FHA mortgages are assumable, which means that a first time home buyer can take over
the payments from a seller which can save a lot of money. |
| VA Mortgage |
| A VA mortgage is a type of loan administered by the Department
of Veterans Affairs and is available only to veterans of the U.S. Armed Forces. It allows a veteran to
purchase a home with no money down and without having to pay points to the lender. Like FHA loans, there
is a maximum limit to the amount that a veteran can borrow. |
| Balloon Mortgage |
| This type of mortgage can vary in length and types. For
example, taking out a balloon mortgage can mean that you make monthly payments of both principal and interest
or just monthly payments of interest only for a specified length of time. In both instance, when the
loan comes due after that specified length of time, you must pay the entire balance of the original loan
amount. They can be paid in one of two ways. The first way is the mortgage can be amortized over
fifteen or thirty years and the home buyer pays the first five or ten years of the loan before paying off
or refinancing the balance. The second payment method is to pay only the interest on the loan until
the end of the loan period at which time they are responsible for the original amount of the loan. |
| Graduated-Payment Mortgage (GPM) |
| A Graduated-Payment Mortgage offers reduced monthly payments
early on in the term of the mortgage and larger payments as the term of the mortgage progresses. The
idea behind this is that it allows mortgage payments for first-time home buyers to increase as (hopefully)
the financial situation of the home buyer improves. |
