It can be confusing to understand all the mortgage terms used when purchasing your home.…
Mortgage Basics: Common Mortgage Types
Many homeowners are unaware of how many different types of mortgages there are. From FHA to VA, here are a few of the most common types of mortgages you should be familiar with:
- Adjustable Rate Mortgage: You may also know these loans as “ARMs,” “AMLs,” (adjustable mortgage loans), or “VRMs” (variable-rate mortgages). This type of mortgage has an interest rate that changes during the life of the loan. These movements are according to an index rate.
- Index Rate: A published number or percentage, such as the average interest rate or yield on Treasury Bills, which is used to decide the amount an interest rate on an ARM will change. Some index rates tend to be higher than others, and some more volatile.
- Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
- Balloon Mortgage: A mortgage in which a large portion of the borrowed principal is repaid in a single payment at the end of the loan period.
- Balloon Payment: The final single payment paid at the end of the Balloon Mortgage loan period.
- FHA Loan: Also known as an FHA loan, this type of mortgage is insured by the Federal Housing Administration, allowing borrowers to purchase a home with a relatively small down payment.
- Fannie Mae: A congressionally chartered, shareholder-owned company that is that nation’s largest supplier of home mortgage funds.
- Fixed-Rate Mortgage: Also known as FRM, these mortgages have a fixed interest rate throughout the entire loan.
- VA Mortgage: These mortgages are guaranteed by the Department of Veteran Affairs (VA), similar to an FHA loan, but primarily for current or former members of the military.
With so many different types of mortgages, it can be difficult to know which is the best for you. Speak with one of our friendly mortgage consultants today to see how Lendello Mortgage can help you.