 | Popular Types of Mortgages
Like homes themselves, mortgages come in many sizes and
types. The type of mortgage that's right for you depends on
many factors, such as your tolerance for risk and how long you
expect to stay in your home. Here are some characteristics of
various popular types of mortgages. | Conventional Fixed Rate
Mortgages | Adjustable Rate Mortgages
(ARMs) | - Low risk
- 10- to 40-year terms
- Interest rate doesn't change
- Large down payment (compared to government mortgages) may be required
- Payment remains the same
| - Higher risk
- Initial interest rate often lower than conventional fixed rate mortgage
- Interest rate may go up or down
- Interest rate usually adjusted annually
- Rate adjustments may be
limited by cap(s) - Payment caps can result in negative amortization in
periods of rising interest rates
| | Government Mortgages | Hybrid Adjustable Rate Mortgages
(ARMs) | - FHA, VA, or bond-backed
- Interest rate sometimes lower than conventional
fixed rate mortgage
- Variety of programs available
- Low down payment requirements
- Liberal qualifying ratios
- Attractive to first-time homebuyers
- Higher insurance costs may apply for FHA loans
- Payment remains the same
| - Higher risk
- Initial interest rate often lower than conventional
fixed rate mortgage
- Fixed term for 1-10 years, then becomes a 1-year
ARM
- May have option to convert to a fixed rate mortgage
before becoming a 1-year ARM
- Interest rate may go up or down
- Rate adjustments may be
limited by cap(s) - Payment caps can result in negative amortization in periods of rising interest rates
| | Jumbo Loans | - Any loan over $417,000 or $625,500 in high-cost areas ($625,500 or $938,250 in Alaska, Guam, Hawaii, and the U.S. Virgin Islands) for a single-family home or condo
- Size of loan increases lender's risk, so interest
rates are generally higher than for conventional fixed rate
mortgages
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