A glossary of available loan types
When considering the many mortgage loan programs that are available, you may find yourself overwhelmed. Here are some mortgage loan types to get a primer (in layman’s terms) on how a particular mortgage plan works.
Fixed-Rate Mortgage –
A mortgage loan program where the interest rate does not change for the life of the loan.
Adjustable Rate Mortgage (ARM) –
A mortgage loan program in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.
Balloon Mortgage –
Behaves like a fixed-rate mortgage loan for a set number of years (usually five or seven) and then must be paid off in full in a single “balloon” payment. Balloon mortgage loan programs are popular with those expecting to sell or refinance their property within a definite period of time.
Two-Step Mortgage –
A mortgage loan program where the interest rate is fixed for the first seven years and then is adjusted one time for the balance of the loan period.
Conforming Loan –
A mortgage loan program for up to and including $417,000.00 in the continental United States (Alaska and Hawaii limits are higher).
Jumbo Loan –
A mortgage loan program for $417,001.00 or more in the continental United States (Alaska and Hawaii limits are higher). These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.