Conventional loans are traditional home mortgages, not backed by any government program of insurance or guarantee. There are standard underwriting guidelines for conventional conforming loans up to $453,100. These loans are available as a fixed or variable (ARM) rate with a variety of repayment terms which can be tailored to your individual needs. Buyers will need cash reserves/savings to cover two months of payments and generally, there is not a penalty for prepayment.
Fixed Rate Mortgage
Fixed Rate Mortgages provide the security of a fixed principal and interest payment for the term of the loan. The term of a fixed rate mortgage can provide the flexibility needed to meet your specific goals. Common fixed-rate mortgage terms are 10, 15, 20 or 30 years.
Adjustable Rate Mortgage
An Adjustable Rate Mortgage (ARM) features a variable interest rate which may periodically adjust after a set term, generally one to ten years. For example, a 5/1 ARM will start with a competitively low interest rate for a five-year period which will be well below a standard fixed-rate loan. After five years the interest rate will reset based upon the loan’s margin and the index (e.g. LIBOR, Treasury, etc.) with which it is tied. Your interest rate may go up or down, or may stay the same depending upon the prevailing index.
ARMs can save on interest and lower your monthly payment. They are completely predictable with upper and lower end caps on how much the interest rates will increase, or decrease. These loans are especially attractive to home buyers who want extremely low monthly payments, or who plan to trade up in future years.
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