lowrate.com

Because you have several types of home mortgages to choose from, you may find it difficult to figure out which is the right one for you.

Here is a list of five home mortgage types along with some information on each one of them.

ARM mortgage

ARM stands for adjustable rate mortgage. This is a home mortgage that allows changes in interest rate at pre-specified regular intervals, usually three or five years after the loan begins. As a result, monthly payments can change quarterly or annually, fluctuating in relation to changes in the financial market.

The initial interest with ARMs is lower than for fixed-rate mortgages. This often allows borrowers to “buy more house” because they qualify to borrow more money. Of course, with an ARM the buyer also runs the risk of monthly payments going up instead of down as time goes on and interest rates fluctuate.

Fixed-Rate Mortgage

A fixed-rate mortgage is quite straightforward. The mortgage rate is constant for the duration of the loan. Monthly payments are a set amount and remain at that amount until the loan is paid off. These mortgages are normally amortized over a 15, 20 or 30 year period. Because the interest rate you pay doesn’t change throughout the life of the loan (as it does with an ARM), your monthly payments never change.

Fannie Mae

This is a type of home mortgage can be transferred into an ARM, fixed-rate or other type of mortgage. Fannie Mae describes their benefits by saying, “Fannie Mae is able to reduce down payment requirements and lower closing costs. More people are able to become homeowners because we link the international capital markets with mortgage finance, providing the lowest-cost financing for American home buyers.”

That means, unlike a conventional bank loan that’s privately owned, a Fannie Mae loan can be used by people who might not have much for a down payment or who want to keep their closing costs lower.

Freddie Mac

This type of home mortgage isn’t associated directly with the person lending but rather the mortgage institutions. As they describe it, “Freddie Mac does not lend money directly to consumers – that is the lender’s job. Freddie Mac’s job is to buy mortgages from lenders across the country that meet the underwriting and specific program standards that produce investment-quality mortgages; this process contributes to lowering interest rates.”

Mortgage companies pass these savings along to the borrowers. With this type of loan, you’ll notice at some point you begin making payments to a different lending institution because the mortgage was part of a “sale.” Some prefer one payment, one lender for the life of a loan. However, if saving money is more of a factor, than Freddie Mac offers good returns.

VA Home Loans

The federal government offers these loans to both veterans of wartime and peace time who were either active military or reserve. Benefits can also extend to a surviving spouse of a serviceman in some situations. Home specifications are more rigid with VA loans in that many repairs or updates must be completed before the loan will be processed.

The type of home mortgage you finally decide on depends on your situation, as well as the seller. For example, some sellers might not accept VA bids because of the restrictions on repairs and such. It really comes down to matching up the right home with the right home mortgage. Once you do that, it’s just a matter of signing the deal and hiring a moving company. Because adjustable rate mortgages can be more complicated that the other types of mortgages, we will spend a little more time breaking down the terms and parameters of them.