Fixed Rate Mortgage Adjustable Rate Mortgage Conventional Mortgage Jumbo Loan Interest only Mortgages Lines of Credit FHA Loans VA Loan No Documentation Loan Negative Amortization Mortgage Reverse Mortgage Fixed Rate Mortgage A fixed rate mortgage has an interest rate and monthly payments that never change. These mortgages afford borrowers stability because they are unaffected by the ups and downs of fluctuating rates. There is no risk of a sudden rate increase making monthly payments unaffordable. Consequently, many people find that the consistent payment amounts aid them in managing their budgets. This is also a popular and practical option for people planning to stay in their homes for several years because they can end up saving money in the long run. Fixed rate mortgages can be more difficult to qualify for than other types of loans, however. And if interest rates decrease significantly, refinancing is required to capitalize and obtain lower payments. Shorter-term fixed rate mortgages offer significant interest savings over longer-term fixed rate mortgages, but have higher monthly payments. Adjustable Rate Mortgage Adjustable Rate Mortgages (ARMs) feature an interest rate that adjusts up or down at specified intervals of the mortgage term. The initial interest rates for ARMs are lower than those of fixed rate mortgages. However, after that preliminary low-rate period ends, the rate adjusts periodically – usually upwards. This makes ARMs a viable choice for borrowers who do not plan to stay in their home for an extended period of time. Others choosing an ARM run a risk of suddenly being faced with unaffordable monthly payments. ARMs are typically easier to qualify for than fixed rate loans because the starting rate and payments are lower. A wide variety of ARMs are available, offering varying initial fixed rate periods and adjustment terms. ARMs featuring initial fixed rate periods of three, five, and seven years, with rates adjusting annually thereafter, are common. These are generally referred to as 3/1, 5/1, and 7/1. Conventional Mortgage Loans that are not insured by the federal government and for amounts under limits established by Fannie Mae and Freddie Mac (government-regulated private corporations) are considered conventional loans. Fannie Mae and Freddie Mac administer these loans. Currently, the conventional loan limit for single families is $333,700 in the continental United States. Jumbo Loan Jumbo loan amounts exceed the conventional loan amount limit. These mortgages are funded by the private investment market. Interest only Mortgages These types of mortgages allow for a payment of only the interest due but usually do not limit the option to pay principal. These mortgages can be very powerful tools for building net worth if managed correctly. They allow for a diversification of the principal dollar and allow the client to determine the best use of those funds, whether it be debt reduction or asset accumulation. Lines of Credit A line of credit allows a homeowner to access equity in their home for any purpose, debt consolidation, home improvement or alternate investment opportunities. It is revolving similar to a credit card and you only pay interest only the amount you use. The interest is usually tax deductible. FHA Loan FHA loans are insured, but not funded, by the Federal Housing Authority. Essentially designed for low- and middle-income borrowers and first-time borrowers, FHA loans tend to have more lenient qualifying criteria than conventional loans. VA Loan The Veterans Administration insures, but does not fund, loans for those with qualified military service. These loans offer more relaxed qualifying criteria and less stringent down-payment requirements than conventional loans. No Documentation Loan No Documentation loans provide a convenient means of financing for people who do not wish to verify their income, are self-employed, have less-than-perfect credit, little credit, or no credit at all. These mortgages typically have slightly higher interest rates and are granted by fewer lenders. Negative Amortization Mortgage With this type of mortgage, has the option to make monthly payments that are less than the accruing interest on the loan. Consequently, if the borrower chooses to make the minimum monthly payment, the loan balance will increase by the amount of interest not paid on the loan. The upside is the borrower can choose to make the full loan payment, the minimum payment, or any amount in between. This type of loan can be practical for someone who does not have a regular, steady income. Reverse Mortgage A reverse mortgage is a loan against your home that you do not have to pay back as long as you live there. You can borrow up to 65% of the home’s appraised value but there are certain restrictions. To qualify for a reverse mortgage, you must be at least 62 years of age and have some equity built up in your home. There are no income or credit requirements but you must occupy the home as your primary residence.