There are different mortgage product types available in the market. The different types of mortgage products are determined on its repayment method. Each has their own pros and cons. Your loan provider will assist you in determining which type of mortgage loan is best for you.
To provide you some background on the major mortgage product types available, below are the quick summaries:
One of the most common mortgage product types is the conventional mortgage. This term is used for a mortgage that meets the credit standards and guidelines on maximum loan amount of Freddie Mac and Fannie Mae. Both of which are the largest mortgage agencies that set the standards. Their standards are usually followed by most lending agencies. Conventional loans offer a maximum amount of $417,000.00. Though, this amount can be adjusted annually. Loans can be used for refinances or purchases, and both adjustable and fixed rate loans are available. Most often, conventional mortgage loans have lower rates, compare to other mortgage products.
A Jumbo mortgage is used to refer mortgage product types which surpass the maximum loan amounts for conventional loans. According to the note written on January 1, 2006, a jumbo loan comes with a one-unit property of the mortgage which exceeds approximately $417,000. The interest rates of Jumbo loans are generally higher than the mortgages on lower loan amounts. In a real sense, you may find that breaking mortgage transactions into a first mortgage does not exceed the maximum amount of conventional loan, and a second mortgage for the remaining amount required, may be more lucrative than a jumbo loan. Both adjustable and fixed rate loans are available.
From the word FHA, the FHA Mortgage is insured by the Federal Housing Administration. Generally, these mortgage product types are designed to make your purchasing easier for first time buyers with less stringent credits and lower down payments than conventional loans. While the expenditures of an FHA mortgage are often higher than a conventional mortgage, they are a good option for first time home buyers, high debt loads buyers, or those who have some credit issues. This “streamlined” features faster processing time and reduced paperwork. Both adjustable and fixed rate loans are available. These loans are subject to limitations of maximum loan amount based on the vicinity in which you are refinancing and purchasing a.
VA Mortgage is a mortgage available to former and current members of the United States armed forces. It does not need any down payment with easier credit requirements, and can also be used as an excellent option for those who qualify.
One thing good about subprime mortgage is the blemished credit being offered to individuals. While these mortgage product may be suitable in certain situations, it is your best interest not to be certain that you will not qualify for other financing types such as FHA loan before you accept any subprime financing. The interest fees and rates are generally higher than other mortgage product types. The adjustable rate loans are offered to make the initial payment appear lower, but rates may increase quickly after the first 6 months.
Throughout the entire term of the loan, the interest rates on fixed rate mortgages do not change. While your total mortgage payment may slightly change based on changes in the homeowner’s insurance components and property tax on your mortgage payment, the interest and principal portion of your payment remains unchanged. The amount of your mortgage payment is highly predictable with this type of loan. While the rates are higher than the rates on adjustable mortgages, you may be interested in a fixed rate loan for smaller loan balances. A fixed rate mortgage can be obtained as a jumbo, conventional, VA, FHA, or even subprime loan.
Variable or Adjustable Rate Mortgages (ARM)
The interest rate of an ARM can change over time, with the interest and principal portion of your mortgage payment fluctuating up and down in response to changes. The initial interest rate on an ARM is lower than a fixed rate mortgage, resulting in lower monthly payments. The interest rate is fixed for a certain period – one, three, five, seven or even ten years - before the rate starts to adjust annually. If you have a higher loan amount, an ARM is worth considering. An ARM can be a jumbo, conventional, FHA, or subprime loan.