When applying for a mortgage there are two basic types of interest rates consumers will receive, either a fixed rate mortgage or Adjustable Rate Mortgage (ARM). Fixed rate mortgages have interest rates that do not change throughout the life of the loan. ARMs are variable rates, meaning the rate changes periodically during the life of the loan. For example, a 5/2 ARM means the interest rate remains fixed for 5 years, but changes every 2 years then after.
A loan term is how long a consumer has to pay off his/her loan. For example, common loan terms for mortgages are 30, 20 or 15 years.
The type of mortgage a consumer will receive is based their individual situation. There are different types of mortgages available.
- Conventional Mortgages are loans that are not guaranteed or insured by any government agency and are typically fixed in its terms and rate.
- FHA Loans are mortgages are offered by the Department of Housing and Urban Development and Insured by the Federal Housing Administration. Consumers opting for an FHA Loan pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.
- Special mortgage loan examples include but are not limited to USDA Loans, VA Loans and Jumbo Loans. Most special loan programs are restrictive and consumers have to meet certain requirements such as veteran status or income levels.