It Is Important To Understand All Of The Kinds Of Mortgages To Choose Between Today

By Author: Scott F. Staudt
Total Articles: 91
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Everything gets ever more complicated minute by minute, and the mortgage world is not different. Applying for a loan today almost requires a financialdegree, there is such a wide array available, not just the traditional, fixed rate, fixed term loans that everyone had years ago.

There are quite a few reasons for this but the most realistic are that people are mobile and that financial markets have spilled over into the real estate markets with the number of products on offer. Today, people change homes more often, either because of job relocations, or because circumstances mean they can afford a larger home.

The second reason is that the creative financing spirit in the other financial markets has gone into the mortgage market, leading to the development of newer, more flexible home loan products.

Here is a brief synopsis of the various kinds of home loans available to today's homeowner.

Grandpa's head would spin.

Conventional loan: This is a loan that has no government warranty.

Government loan: Any loan that is either guaranteed or managed by one of the federal or state agencies.

Conforming ...
... loan: Adheres to the conditions that have been set by the two main government supported entities (GSEs), Fannie Mae and Freddie Mac. These are often called "A" paper conforming loans.

B, C loan: These are loans that will not be guaranteed by Fannie Mae and Freddie Mac because they do not conform. These types of loans are usually the ones granted to borrowers with poor credit scores, or who have even experienced bankruptcy. often, they are used as temporary loans until a conforming loan can be put in place.

Jumbo loan: A loan that is above the top loan amount set by Fannie Mae and Freddie Mac. Such loans carry a higher interest rate as a rule, since there are not enough of them to make for a very liquid market.

Fixed rate loans: This is the traditional loan such as grandpa would have had-fixed term, fixed rate. The rate is fixed at the beginning of the loan, and therefore the mortgage payments remain the same throughout the life of the loan. Usually fixed rate loans have maturities of 15 or 30 years, although maturities of 10,20,30 and 40 years are available. The shorter the maturity on the loan, the better its rate will be because there is less exposure to interest rate changes for the lender.

A Balloon loan is an interesting hybrid between a long term loan, because of its payout schedule, and a short term loan, because of its maturity date. Balloon loans have lower interest rates, but a strong risk of higher rates when the whole loan has to be paid off at maturity.

{Adjustable Rate Loan: This loan solved the issueeof banks having to take undisireable risks on the direction of interest rates, since the rate is adjusted periodically over the life of the loan, based upon a pre-determined index, such as
Treasury Bills, Certificates of Deposit, Cost of Funds Index, the Prime Rate and others.|Adjustable Rate Loan: Since lenders try to limit the amount of interest rate volatility they are exposed to, they now prefer to lend with adjusting rate mortgages, where the rate on the loan is adjusted at fixed intervals, predicated on a standardized index (TBills, CDs, etc.).|Adjustable Rate Loan: Banks prefer to avoid fixing loans for maturities too long since interest rates can increase, so they now deal in ARMs (Adjustable Rate Mortgages), that have interest rates that change periodically, based on a given index such as Treasury Bills or Certificates of Deposit.|An Adjustable Rate loan doesn't act like you will have a low rate for a long time, since you agree th
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