you may hear about many different types of mortgage loans,
they all belong to two families: conventional and government
. These loans are available through various mortgage
The major advantage of fixed rate mortgages is that you
know what your housing costs are for the life of the loan.
Some fixed-rate mortgages you will probably hear about are:
This is the easiest fixed-rate loan to qualify for. It
keeps your monthly mortgage payments low by making your
payments over a longer period of time. However, the
longer the term of the loan, the more total interest you
will pay. This mortgage loan may be ideal if you plan to
remain in your home for years and wish to keep your
housing expense low. This loan also provides maximum
interest deduction for tax purposes.
The 15-year mortgage offers a lower interest rate than a
30-year mortgage. This type of shorter-term mortgage
will save you a significant amount of interest over the
life of the loan. By paying off the mortgage more
quickly, you also build up equity in your home soon.
However, the monthly payments you make will cost you
more than those on a 30-year mortgage.
With an adjustable-rate mortgage (ARM), the interest
rate you pay is adjusted from time to time to keep it in
line with changing market rates. This means that when
interest rates go up, your monthly mortgage payments may go
up, too. On the other hand, when interest rates go down,
your monthly mortgage payments may also go down.
ARMS are attractive because they may initially offer a lower
interest rate than fixed-rate mortgages. Since the monthly
payments on an ARM start out lower than those of a
fixed-rate mortgage, you can qualify for a larger loan. You
may want to consider an ARM if you are confident your income
will be enough to comfortably handle any increase in
payments, if you plan to move in a few years, or if you need
a lower initial rate to afford to buy the home that you
Before applying for an ARM, find out how high your monthly
payments could go – the "worst-case scenario." An ARM has
two caps on how large an interest rate increase is
One cap sets the most that your interest rate can go up
during each adjustment period. For example, your ARM may cap
the yearly interest rate increases at 2 percent, meaning
that the adjusted interest rate can never be more than 2
percent higher than the previous year.
The other cap sets the maximum total amount of all interest
adjustments over the life of the loan. For example, your ARM
may have a lifetime rate cap of 6 percent, meaning that the
highest adjusted interest rate you can ever be required to
pay is no more than 6 percent above the original rate.
Finally, one important thing to know when comparing ARMs is
that the interest rate changes on an ARM are tied to a
financial index. A financial index is a published number or
percentage. Lenders use this index to measure the difference
between what they are making on their investment in the
mortgage and what they could be making on other types of
investments. The most popular financial index is based on
the rate of return on a one-year a Treasury bill (T-bill).
To obtain these loans, you apply through a lender that is
approved to handle them.
With a FHA loan, you can purchase a home with very low
down payments (from 3 to 5 percent of the FHA appraisal
value or the purchase price, whichever is lower). FHA
mortgages have a maximum loan limit that varies
depending on the average cost of housing in a given
county. They are available in both fixed-rate or
adjustable-rate mortgage plans.
Rural development loans offer home loans with no
down payment requirements to low- and moderate-income
persons who live in rural areas or small towns.
WHEDA’s HOME program features low down payments and
below-market interest rates. And with HOME, your rate is
fixed for the term of your loan – from 15 to 30 years.
You must meet certain requirements in order to be
eligible for a HOME loan.