Mortgage Basics

15 Year Fixed Rate Program

A 15 year fixed mortgage is a type of loan that is repaid by the borrower making 180 equal monthly payments over a period of 15 years. Since the borrower's payments are 'fixed', the borrower can expect to make the same monthly payment for the entire term of the loan. A 15 year mortgage loan is the most widely accepted program used to finance a residential purchase.

30 Year Fixed Rate Program

A 30 year fixed mortgage is a type of  loan that is repaid by the borrower making 360 equal monthly payments over a period of 30 years. Since the borrower's payments are 'fixed', the borrower can expect to make the same monthly payment for the entire term of the loan.

1, 3, 5, 7, 10 Year Adjustable Rate Loan Programs

An Adjustable Rate Mortgage (ARM) is a loan that is mostly known for its low starting interest rate. This low introductory rate is used to calculate the mortgage payment for a specified period of time. Once this introductory period is over, the interest rate is adjusted periodically based on a pre-selected index. The most commonly used index is the yield on the one-year Treasury Bill. The new interest rate is determined by adding this index to a set margin (which is determined by the lender). Although there are a variety of adjustable rate mortgage programs available, the most common program is the One Year Adjustable Mortgage (one Year ARM). The interest rate on the one year ARM is adjusted once each Year, for 30 years.

Jumbo Loan Programs

A jumbo mortgage is a mortgage loan which is larger than the limits set by Fannie Mae and Freddie Mac ($252,700 as of 1/1/2000). Since these two agencies will not purchase these types of loans, they usually carry a higher interest rate (to enhance their value and marketability to investors).

FHA Loan Programs

An FHA mortgage loan is insured by the Federal Housing Administration. Although mortgage lenders provide the mortgage funds, the FHA sets underwriting standards for approving applicants. In many cases, FHA underwriting guidelines are more lenient than conventional (not government insured or guaranteed) underwriting guidelines. This leniency makes it easier for borrowers to qualify for a mortgage loan (low down payment requirements and a higher monthly debt allowance). FHA limits the types of loan programs it insures, but it will insure the more popular 30 year fixed, 15 year fixed and one year adjustable loan programs.

VA Loan Programs (Dept. of Veterans Affairs)

A VA mortgage loan is a loan that is guaranteed by the Department of Veterans Affairs (DVA). One of the biggest advantages of using a VA loan is that the borrower can finance the purchase of a property with no-money down. However, VA loans are restricted to individuals qualified by military service. The DVA will guarantee the more popular 30 year fixed, 15 year fixed loan programs.

5/25, 7/23 Balloon Programs

A balloon mortgage loan is a type of loan that has a short term (normally 5 or 7 years), but the monthly payment is computed using a 30 year term. When a borrower uses a balloon loan, he will make the monthly payment for the scheduled loan term (5 or 7 years). When this loan term is over, the borrower is required to pay off the remaining balance in one lump-sum payment. If the borrower decides not to sell the property after the loan term is over, the borrower has the option to refinance the mortgage with a new one. If the conversion feature is used, the interest rate for the remaining term of the loan (23 years) will be adjusted once to reflect market conditions, then remain fixed for the remainder of the loan term.