Mortgages that are not government-backed are known as conventional home loans.
They include:
- Conforming loans
- Non-conforming loans
- Jumbo loans
Conforming loans conform to guidelines established by government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac. They buy mortgages from lenders and sell them to investors to make mortgages more available.
Jumbo loans are loans that are larger than the loan limits set by the GSEs.
Portfolio loans are loans that are held by mortgage lenders on their own books. These types of loans may have features that other loans do not because lenders can set their own guidelines.
Fixed Rate Loans have interest rates that don’t change for the life of the loan.
Benefits of a Fixed Rate loan include:
- PMI is not for the life of the loan.
- The interest rate does not change for the life of the loan which provides protection from rising interest rates.
- Available for refinancing.
- Different fixed rate period options are available, such as 10, 20, 25 or 30 years.
Adjustable Rate Loans
With an adjustable rate loan, the interest rate changes periodically, usually in relation to an index and payments may go up or down accordingly.
Benefits of an Adjustable Rate loan include:
- Lenders generally charge lower initial interest rates, making payments lower for a certain period of time.
- The loan could be less expensive over a long period than a fixed-rate mortgage if interest rates remain steady or move higher.
Considerations of an Adjustable Rate loan include:
- There is the risk that an increase in interest rates would create higher monthly payments.
- The length of time the loan is held should be considered. If the loan will not be held for a long time, rising interest rates may not pose a major problem.