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A loan with the same interest rate for the entire life of the loan. A fixed-rate mortgage provides you with predictable monthly payments throughout the life of the loan. You will also be protected from rising rates, so your principal and interest payments can never increase, no matter how high interest rates rise.
This loan has interest rates that adjust periodically based on market conditions. The initial rate is fixed for an introductory period (usually one to 10 years), and is typically lower than for a fixed-rate mortgage. After that, the rate adjusts annually or semi-annually based on a market index, but it can’t go above a predetermined adjustment cap. Due to the lower initial rate, some borrowers may be eligible for a larger loan amount with an ARM than with a fixed-rate mortgage.
These loans are backed by the Federal Housing Administration, and are designed to assist low-to-moderate income homebuyers by offering low down payment requirements and flexible qualifying guidelines.
A loan backed by the Department of Veteran Affairs (formerly the Veterans Administration), and are available to qualified veteran and active-duty military personnel and their spouses. They offer many of the same features as FHA loans.
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Mortgage
A mortgage is a loan made to help you finance a home. Your lender advances you a certain amount of money, which you repay over a specified period.
Interest Rate refers to the percentage of your outstanding loan balance that you pay the lender each month as part of the cost of borrowing money. Your interest rate will be based on the current overall rate environment, as well as your financial profile and the specific features of your loan.
Discount Points allow you to “buy down” your interest rate at closing. One point equals 1% of your loan amount, and the more points you pay, the lower your interest rate will be, and the less you will have to pay each month. How much your rate decrease with each discount point you pay will depend on the specific features of your loan.
Loan Fees are up-front charges to cover the cost of originating, processing, and closing your loan, among other things. An origination point is a loan fee that equals 1% of your loan amount.
Principal refers to the amount of money you borrow to buy a home, and to the outstanding loan balance at any point during the mortgage term.
Interest is the cost of borrowing money. As noted above, the amount of interest you pay each month is determined by your interest rate.
Taxes assessed by your local government will likely be collected by your lender as part of your monthly payments, and then paid annually or semi-annually on your behalf. This process is known as an escrow.
Insurance, like property taxes, is normally collected by the lender in an escrow account. Insurance offers financial protection, and has two major components:
Home Owner’s Insurance, also called hazard insurance, protects you against damage to your property caused by fire, wind or other hazards.
Mortgage Insurance protects your lender in the event that you fail to repay your mortgage. Whether you must pay mortgage insurance usually depends on the loan program and the size of your down payment.
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