There are many different types of loans out there. You will need to decide which one best suits your needs. When selecting the "right" mortgage, you must take into account your current financial situation and what you expect your financial situation will be in the future. There are other factors that will need to be included in making this decision such as how may points you wish to pay and whether you wish to be tied into a set interest rate for the term of the loan or are willing to take a gamble with an adjustable mortgage. Your lender will be able to help you make this decision.
What is the difference between a Conventional and Government- backed loan?
The most common types of loan are conventional and government backed. A conventional loan is backed by bankers that is to say they are secured by the lender. A government-backed loan is secured or backed by the government however it is still a lender who makes the loan.
What is a fixed rate and adjustable rate mortgage?
There are many different types of mortgages however fixed rate and adjustable rate mortgages are the two most common. Here is a brief summary of the different types of mortgages. For more detailed information, see Relocation.com Different types of Loans for your Mortgage guide.
Fixed- rate Mortgage
As the name suggests the interest rate on this mortgage type is set for the term of the mortgage. The term can be over 10, 15, 20 and the most popular 30-year term. When interest rates are low this can be an excellent choice of a loan. The monthly mortgage payment of principal and interest remains the same over the term of the loan.
Adjustable rate mortgage (ARM)
This is commonly known as an ARM mortgage as the interest rate fluctuates over the term of the mortgage. The interest rates are pegged to a specific index or Treasury bills. The initial interest rate tends to be quite low and is set for a specific amount of time. Once the time expires, the interest rate may change to the current interest rates. There is usually a yearly cap of two percent on these types of loans and also a lifetime cap f around five percent. Depending on the economic climate, interest rates may also go down which could potentially save you thousands of dollars over the term of the loan.