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Fixed Rate The interest rate and mortgage payments are fixed for the full loan term. This provides the borrower with protection from rising interest rates.
Adjustable Rate Mortgage (ARM) An adjustable-interest rate, or “floating-interest rate,” is not fixed. Aptly named, it is adjustable. The mortgage rate is often linked to an interest rate index (e.g., LIBOR or Treasury) and fluctuates with the rise and fall of its corresponding index. The starting rate on an adjustable-rate mortgage is usually lower than a comparable fixed-rate mortgage, which makes it financially appealing short-term.
Fixed Period Adjustable Rate Mortgage (ARM) This is a hybrid blending the fixed-rate and ARM. The loans are fixed for a specified period. The most typical fixed period ARMs are 5-1, 7-1, and 10-1 ARMs. The first number describes the fixed period, and the second number, the index.
The most common loan in America is the conventional 30-year fixed mortgage. If you have a down payment of 20% or more, no mortgage insurance is required. Since there is no mortgage insurance, the total loan payment for conventional mortgages is typically less than other types of mortgages (loan amounts up to 417,000). High-cost areas such as Los Angeles, Orange County, and San Francisco have loan limits temporarily set up to 625,000. Click here for more information regarding loan limits.
Due to its low down payment requirements and flexible guidelines, the FHA loan program is popular among first-time homebuyers. Current and past homeowners can also qualify for an FHA mortgage; it is not restricted to first-time mortgage borrowers. In fact, anyone over the age of 18 can apply for financing. The FHA can offer lenient loan requirements to borrowers because of mortgage insurance. It requires upfront mortgage insurance of 1.75% due at closing, which can be financed into the loan amount for the borrower's convenience. In addition, the FHA requires monthly mortgage insurance of 1.35% of the initial loan amount for the life of the loan. The cost of mortgage insurance is offset by the appealing interest rates and relaxed loan requirements the FHA offers compared to conventional lenders.
The VA offers excellent interest rates and no down payment required. There is a funding fee, however, which covers the mortgage insurance, but there is no monthly mortgage insurance. The VA funding fee can be financed into the loan amount to reduce the out-of-pocket expense. VA loans are only available to US Veterans. Applicants must have their Certificate of Eligibility. Click here for more information.
Jumbo loans are also known as “non-prime” loans. Conventional, FHA, and VA loans are prime loans because the government-sponsored entities Fannie Mae and Freddie Mac endorse them. On the other hand, jumbo loans are supported by private investors and do not have universally qualifying criteria. The Consumer Finance Protection Bureau requires all lenders to prove the borrower’s ability to repay. They do not specify the method of qualifying. Jumbo loans are typically for loan amounts greater than 625,000. Please contact your loan officer at Metric Mortgage Corp with your individual scenarios.