Home Mortgage 101: Which is the Best for You?

Posted on | September 27, 2019

Shopping is exciting – who doesn’t love to add more fun and cute stuff to their cart?

What might not be as fun: mortgage shopping. We get it, we get it. But that doesn’t make it any less important.

Like our previous article on mortgage shopping, it’s important that you know how to compare and lock in the rate you want. But what about the types of mortgages?

Let’s dive into that here:

Fixed Rate vs. Adjustable Rate

Fixed-rate mortgages will have the same interest rate and monthly payment for the entire life of the loan – whether that’s 5, 15, 30 years or more. If rates are low, this might be the better option for you.

Adjustable-rate mortgages (ARMs) have interest rates that can possibly change at set intervals during the life of your loan. If rates are high, adjustable-rate mortgages might help in the long run.

Interest-Only Mortgage

This mortgage gives you the option during the first 5 or 10 years to pay only the interest of your monthly payment instead of the full payment.

Conforming vs. Non-Conforming Mortgages

A conforming mortgage meets the standards set by Fannie Mae and Freddie Mac – the government-sponsored institutions that buy loans from banks.

Non-conforming mortgages do not meet these standards, which means lenders offset the risk by possibly charging a higher interest rate.

Federal Housing Administration (FHA) Loan

You must meet the FHA lending guidelines to obtain this loan. THE FHA insures the loan and lowers the risk for the lender – so usually this option offers competitive interest rates and less strict credit requirements along with low down payments. Buyers should be aware of monthly insurance payments you’ll likely have to pay for selecting this option.

Conventional vs. Government-Backed Loan

A conventional loan is issued by a private lender and assumes the risk of losing money if you default on your mortgage. A government-backed loan is insured either completely or partially by the U.S. government (Veteran Affairs Loans is one example.)

Want more news and tips on all things real estate? Be sure to check out AmeriTitle’s Blog to stay in the know.

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