If You Are in the Market for a Home Mortgage Loan
Anyone in the market for a home mortgage loan knows how confusing it can be to choose the right product. The choice used to be a simple one among fixed rate, or conventional, home mortgage loans, Federal Housing Administration (FHA) insured home mortgage loans and Veterans Administration (VA) guaranteed home mortgage loans. These home mortgage loan products are still available but face competition from newer offerings like adjustable rate mortgages (ARMs), reverse mortgages and home equity home mortgage loans.
The fixed rate conventional home mortgage loan provides the most stability to your monthly budget. Your principal and interest payments remain constant because the interest rate remains constant over the life of the loan. Any fluctuation would be caused by changes in the amounts set aside each month for real property tax and property insurance escrows.
FHA and VA home mortgages are not mortgage loans, per se. The FHA insures home mortgages granted by participating lenders to first time or low to moderate income home buyers who put down a deposit of no more than 20 percent of the purchase price. This insurance lessens the risk to lenders if a borrower defaults. The VA guarantees, up to a certain amount, home mortgages granted to veterans of U.S. military service. This guarantee protects the lender against borrower default, and the VA can sue the borrower for recovery of the guaranteed amount.
ARMs, reverse and home equity home mortgage loans are more recent additions to the mortgage market. ARMs offer a few years of fixed interest rate stability at the beginning of the loan term but, after that initial fixed rate period, the rates (and your monthly payment) will fluctuate as financial markets dictate. Reverse home mortgages are offered to homeowners aged 62 and older. In a reversal of the typical mortgage arrangement, the lender issues the borrower monthly payments based on the amount of available equity in the home, which the borrower can apply toward living or medical expenses. Home equity mortgages, which (as the name suggests) are secured by available home equity, are typically line of credit mortgages that take a subordinate position to the borrowers purchase money home mortgage.