Mortgage Loan Types Explained
As one of the largest loans an individual can sign for in his or her lifetime, taking on a home loan is a big deal. That’s why it’s important to fully understand your mortgage options before signing on the dotted line.
With a fixed-rate mortgage, your loan terms will include an interest rate that remains static, or fixed, for the duration of the loan. The advantage to a fixed interest rate is that you will always know the amount of your monthly payment.
For long-term home loans - think 15 to 30 years -, fixed interest rates may be the better option because they guarantee consistency over time. However, if you only plan to own your home for short time (for example, 5 years), consider interest rate trends to ensure you won't be stuck paying a higher rate if a decline in interest rates is anticipated.
An adjustable-rate mortgage (ARM) is exactly as it sounds: a mortgage with an interest rate that can fluctuate and change based on the current market and indexed rates.
A perk to an ARM is that the initial interest rate is typically lower than that of a fixed-rate, long-term home loan. But, you need to understand that that rate could change at each adjustment period, so you should plan accordingly for those incremental payment modifications over time.
Federal Housing Administration (FHA) Loans
Federal Housing Administration (FHA) loans are guaranteed by the federal government and offer assistance to those who do not meet the conventional loan down payment requirements. FHA loans also have more flexible qualification requirements, which make them attractive to those worried about being turned down for conventional mortgages.
It’s important to note that FHA loans are those that are insured by the FHA—not provided by it. You will still need to locate an FHA-approved lender once your FHA loan application is approved. When choosing that lender, ask questions regarding additional fees or any possible changes to the FHA loan terms.
Veterans Affairs (VA) loans
VA loans are mortgage loans guaranteed by the Department of Veterans Affairs (VA). VA loans offer long-term financing to eligible American veterans or their surviving spouses who meet certain qualifications. The intent of VA loans is to provide home financing to eligible veterans where private financing is not generally available, and to assist veterans in purchasing properties with no down payment.
A jumbo mortgage loan has a loan amount that exceeds conventional loan parameters (loans over $417,000 and up to $2 million) and is designed to accommodate higher-value homes.
Adjustable Rate Mortgage
An adjustable rate mortgage (ARM) is exactly as it sounds: a mortgage with an interest rate that can fluctuate and change based on the current market and indexed rates. With an ARM, you may want to negotiate for a maximum cap to the interest rate to keep it within a reasonable scale.
A perk to an ARM is that the initial interest rates are typically lower than those of a fixed-rate, long-term home loan. But, you need to understand that that rate will change after every adjustment period, and plan accordingly for those incremental payment modifications over time.
A UMB mortgage loan officer will be happy to discuss these loans types with you and answer any questions you may have. Please contact us at one of our mortgage centers or complete and online inquiry form.