Loan Types

I have included a list of various loans with a basic explanation below for your information. It is important to discuss your loan options with a lender you trust:

Adjustable Rate Mortgage (ARM ) – This type of loan often offers the consumer a lower interest rate but once the Hybrid ARM resets/adjusts (i.e. after 3,5,7,10 years) the interest rate is adjusted based on fully indexed rate (index + margin). Many ARMS have a cap so that the rate cannot be adjusted beyond a certain percentage from the introductory rate given during the initial fixed interest period. Ask your lender about the limitations on adjustments to ARMS they offer.

Fixed Rate Mortgage– This loan locks you into an interest rate for a period of time, usually, 15 or 30 years. This type of loan is more stable and you do not have to worry about the interest rate increasing like an adjustable rate mortgage.

Conventional Mortgage– These types of loans are often insured by private mortgage companies so the buyer is required to pay mortgage insurance unless the down payment is least 20% of the loan amount. Conventional loans vary from lender to lender so you may want to “shop” for loans to see where you can get the best interest rate and loan that meets your needs.

Graduated Payment Mortgage (GPM) – This type of mortgage offers lower payments initially in the loan but gradually the payments increase over time. A law student may choose this type of mortgage since he plans to make more once practicing in the field. Remember, this type of loan will cause the buyer to owe more than the original principal since the unpaid interest is added on to the loan amount due to the buyer making lower payments.

Reverse Annuity Mortgage (RAM) – This may be a good option for seniors who would like to pull the equity out their home without having to sell it via one lump sum or multiple payments as a steady income. The loan repayment is deferred until the homeowner sells or leaves the home.

Federal Housing Administration (FHA) – Many lenders offer FHA loans; there are many types of loans to choose from and they do not require private mortgage insurance. FHA loans differ from conventional loans in that they are insured by the Federal Housing Administration thus, requiring a lower down payment from the buyer.

Veterans Administration (VA) – In order to qualify for a VA loan, one must be a veteran of the armed forces or a surviving spouse (widow) of a veteran. There a variety of loans that are insured by VA to choose from and do not require private mortgage. insurance. These types of loans usually allow 100% financing without having to get a second mortgage.

Interest Only– There are many loan options with interest only loans and the monthly payments are considerably lower than a conventional mortgage payment since the buyer is not paying off the principal of the home but instead only the interest. This type of loan works well for investors or people who are in debt and need the extra cash flow to meet other financial needs. In certain situations, this can be a good option but speak with a lender to find out which option works for you.