Fixed rates are the most common type of mortgage and generally thought of as the standard. With a fixed rate program the loan interest rate will be fixed for a specific period of time. Most banks or Mortgage Companies offer fixed rates with the following terms: 10, 15, 20, 25, and 30 years. Depending on the investor and size of your loan you will have minimum downpayment options ranging as low as zero up to 40%
There are two main types of Fixed Rate Mortgages; Conforming and Jumbo:
A conforming loan is one that falls within the secondary market loan amounts and meets the requirements set by Fannie Mae and Freddie Mac. While your payment will be made to a bank or mortgage company, these loans are typically sold on the secondary market which then bundles them and sells them as Mortgage Backed Securities on Wall Street. Due to the fact that these loans are packaged and sold as securities (always at market interest rates) there is an unlimited supply of fixed rate mortgage money.
The current loan conforming loan limit for a single family home is $275,000. This loan limit will increase for two, three and four family homes.
A Jumbo Loan is one in which the desired loan amount exceeds the secondary market loan limits. Because of the fact that private companies back these loans there is not an unlimited supply of funds and therefor these loans typically have a slightly higher interest rate.
THE BENFITS OF A FIXED A RATE MORTGAGE
* Your interest rate will be fixed and therefor you will not have any interest rate risk in the future.
THE DETRACTORS OF A FIXED A RATE MORTGAGE
* Because the Financial Institution that owns the loan will assume all the future interest rate risk the rate is typically higher than adjustable rate programs in which the borrower takes on some of the interest rate risk.
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