There are two broad types of Mortgage Loans. They are: Conventional Loans and Government Loans.
Conventional Loans: These are loans that cannot be insured. There are four types of Conventional Loans. They are: Fixed Rate Mortgage Loans [FRM], Adjustable Rate Mortgage Loans [ARM], Balloon Mortgage Loans and Sub-prime Mortgage Loans.
Fixed Rate Mortgage Loans offer a non-fluctuating, fixed interest rate over the entire loan period. However, though the interest rate remains constant, the property tax and any insurance premiums associated with the property can change. An FRM Loan term is usually 15, 20 or 30 years. A 15-year loan has a faster payoff and lower interest rate than the other two.
Adjustable Rate Mortgage (ARM) loans charge interest rates that change according to market rates and economic trends. Interest rates in ARM loans are initially lower than those in FRM loans. After the initial loan term, the interest rates fluctuate unexpectedly. ARM Loans involve a maximum limit, known as `cap, up to which the interest rates can go over the loan term. Caps are one of the most important indicators in an Adjustable Mortgage Loan. These interest rates are sometimes `tied by lenders, to Certificates of Deposits, one-year Federal Treasury Bills, London Inter-Bank Offer Rate (LIBOR), or other indexes. These indexes can increase or decrease at any time depending upon global economy. Interest rates also change consequently. Adjustable Rate Mortgages involve 1, 3, 5, 7, or 10-year loan terms. Interest rates on ARM Loans are lower than that on FRM Loans.
Balloon Mortgage Loans offer an initial interest rate that is lower than fixed-rate mortgages for 5 to 7 years and then expects the borrower to repay the balance as one final payment, known as a "balloon" payment.
Sub-prime Mortgage Loans are suited to borrowers with poor credit. These loans offer less attractive terms to the borrower.
Government Loans are administered in two types: Federal Housing Administration [VHA] and Veterans Affair [VA].
FHA Loans are meant for people who earn low to moderate income. These loans provide insurance to the lender in case of a default on a home loan, instead of providing insurance to the people or families. In this way the system is very straightforward and in contrast to corrupt loan schemes in many countries.
VA Loans are geared for individuals who have served in the military and have had an honorable discharge. VA Loans do not require any down payment from the borrower.
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