Mortgage Basics

Mortgage 101

A mortgage is, in a nutshell, a loan that provides you with the extra cash you need to buy your new home. In return, you agree to pay your lender back in the coming years.

  • A fixed-rate mortgage (FRM) is the most common type of loan. It includes a monthly principal and interest payments that never change.
  • An adjustable-rate mortgage (ARM) includes payments that shift during the loan’s term depending on current market conditions. Generally, these loans carry a fixed-interest rate for a set period of time before adjusting. They also have a “cap” rate that won’t allow the rate to increase over a certain percentage.
  • An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA), allowing borrowers to get low mortgage rates with minimal down payment.
  • A VA loan is a mortgage guaranteed by the Department of Veteran Affairs. The program was designed to help military veterans become homeowners and offers low interest rates with no down payment.
  • A USDA loan is a loan from the USDA loan program that is offered to rural property owners by the United States Department of Agriculture.
  • An interest-only mortgage is a home loan in which borrowers make monthly payments solely toward the interest accruing on their loan, rather than the principal, for a specified period of time.
  • A balloon mortgage is a loan with a note rate that remains fixed initially and then the principal balance becomes due at the end of the mortgage term.
  • A reverse mortgage allows senior homeowners to convert a portion of their home equity into cash while they are still living in their home.
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