Types of Mortgages

The two most common mortgages are the fixed rate mortgage and the adjustable rate mortgage (ARM). With a fixed rate mortgage, the interest rate remains the same over the life of the loan. With an ARM, the rate can change at a predetermined interval, such as each year or once every five years. The rate for an ARM is tied to changes in a published index such as US Treasury bonds. If the index goes up or down, the mortgage rate and payment does the same. Most ARMs have maximum and minimum rates referred to as a ceiling and a floor rate.

There are a variety of government programs that make it easier for borrowers to obtain a mortgage. FHA (Federal Housing Administration) loans help lower- and moderate-income borrowers obtain loans for housing by providing insurance for lenders against borrower default. The borrower pays for the mortgage insurance by paying a fee to FHA. The VA (Veterans Administration) guarantees loans made to qualified veterans that have served in the military. Other agencies buy mortgages from lenders and sell them to investors on the secondary market. These include the Federal National Mortgage Association (FNMA or “Fannie Mae”), The Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac“) and the Government National Mortgage Association (GNMA or “Ginnie Mae”).