Fixed-Rate Mortgage - good for long term owners (7+ years).
The interest rate and the principal payments remain fixed throughout the loan. Keep in mind that, if you establish an impound (escrow) account to cover the payments for taxes or insurance with your monthly mortgage payment, your payment will vary from year-to-year as taxes and insurance rates change.
Variable or Adjustable-Rate Mortgage - short term low rates.
The interest rate on the loan fluctuates over the period of the loan. Periodic adjustments to the interest rate are made based on changes in a defined index. The loan's interest rate is determined by adding a fixed number of points to the defined index (called "fully-indexed"). (see glossary: Adjustable Rate Loan; & Fully-Indexed)
Balloon Loan - "balloon" loans can be a good tool.
Short term, fixed-rate mortgage that has monthly payments usually based on a 30-year amortization schedule and a lump sum payment due at the end of term; usually 3, 5 or 7 years. The interest rate on balloon loans is usually less than a 15yr or 30yr fixed-rate mortgage. These can really save on monthly payments when you know you will be selling or refinancing in the near term.
Option loans - interest only, and low payment qualifyer loans. These loans are offered to provide optional payment structure. Each month you may have the option of a "fully amortized" loan payment, an "interest only" payment, or a "contracted - minimum" payment. They are a variation of the Adjustable Rate Mortgage, with a more frequent adjustment period (usually monthly).
Piggyback Loan - great way to avoid PMI (mortgage insurance)
A second mortgage that closes with the first. Often the first mortgage is for 80% of the purchase price and the "piggyback" is for 10%. The home buyer covers the remaining 10% with their down payment. (Some lenders will write a second mortgage of 15% or even 20% of the purchase price.) This works for refinances too!
Housing Finance Agencies - teachers, low-earners, 1st timers
Several counties offer special loan programs to low and moderate income buyers, buyers interested in rehabilitating a home in a targeted area, and other groups as defined by the agency. Working through a housing finance agency, you can receive a below market interest rate, down payment assistance and other incentives.
- Portfolio Loans - if your situation is only slightly "out-of-the-box"
Some major lenders have two types of loans they write: 1) loans they can sell on the secondary market (see Glossary); and, 2) loans they intend to service themselves for the entire term of the loan. This latter group is the "portfolio" group - they offer more flexibility because they never intend to sell the loan or meet FNMA or FHLMC resale guidelines.
The selections for Jumbo / Non-Conforming Loans are roughly the same as for Conforming Loans. - sometimes you can get things done in a Jumbo that can't be done in a Conforming Loan.
Loans for borrowers whose financial situation and loan needs fall outside the normal guidelines established by Fannie Mae and Freddie Mac.
Jumbo Loans can go as high as you need - $5,000,000+