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A conventional loan is a mortgage that is not insured
or guaranteed by any agency of the federal government. Conventional
refers to all loans other than VA or FHA. The most common conventional
loans have fixed interest rates, are long term loans, and are completely
amortized.
You name it, it’s been done as a conventional
loan. Most common are:
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30 Year fixed rate
The 30 Year fixed mortgage is the backbone of the mortgage financing
industry. With this mortgage the interest rate you receive remains
the same throughout the term of the loan. Of course, you have
the option to refinance should interest rates lower over time.
See Refinance for
more information.
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15 Year fixed rate
The 15 Year fixed mortgage is mostly used by people who want
to build equity in their home more quickly and pay off their
mortgage in a shorter period of time.
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6 Month, 1 Year, 3/1, 5/1,
7/1, and 10/1 ARMS
ARMS are fixed rate mortgages for a specified period of time:
6 month, 1 Year, 3, 5, 7 and 10 years respectively. Typically
the borrower pays a lower interest rate, which will then adjust
for the remaining term of the loan as disclosed in the ARM.
The borrower will then have the option of refinancing or continuing
to pay the adjusted interest rate.
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5 Year and 7 Year Balloon
There is a lower initial interest rate for the specified period
of time. When that balloon matures, the balance must be paid
in full, hence one balloon payment. This program is designed
for the person who plans on paying off their home, or moving,
within 5 or 7years.
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