An Overview of All the Home Loan Products That are Around Today.

Everything gets ever more complex minute by minute, and the mortgage world is no different. No longer can we expect to just be offered a 30 year conventional fixed maturity mortgage like grandma and grandpa were.

Times have changed considerably since grandma and grandpa’s day, and we live with a lot more change. Today, people change homes more often, either because of job requirements, or because circumstances allow them to afford a larger home.

Financial innovators were not happy to only introduce their complicated products in the stock market and commodity market; they also had to do it in the housing market.

If you are interested in learning something about this incredible array of home loan products available, here is your opportunity.

Grandpa and Grandma had luck.

Conventional loan: Any mortgage that is not secured by a public entity.

Government loan: Any mortgage that is either guaranteed or managed by one of the federal or state agencies.

A Conforming loan is one that meets the requirements of these government or quasi government entities. These are often called “A” paper conforming mortgages.

B and C loans have no such guarantees from agencies such as Fannie Mae or Freddie Mac, and therefore do not “conform”. These are typically offered to borrowers who may have recently filed for bankruptcy or foreclosure, or have a bad credit rating. They are intended as temporary financing for applicants like this.

Jumbo loan: A loan that is above the top loan amount fixed by Fannie Mae and Freddie Mac. These loans will usually have a higher rate of interest than conforming loans, because the market is much smaller.

A fixed rate loan is the kind of loan everyone remembers as the old fashioned type of home loan: a fixed rate mortgage for a fixed length of time. With a fixed rate loan, the rate and maturity are fixed at the outset and the mortgage amount never changes. They are available in maturities as short as 10 years, and as long as 40 years, but they typically have 15 or 30 year terms. Normally, the shorter the maturity of the loan, the lower the interest rate, since the bank is not taking as great a risk on the movement of interest rates.

Balloon loan: A short maturity loan with payments based on a longer maturity, but having the full principal due at maturity. The interest rate on balloon loans is usually the lowest available and the reason is easy to see: the bank has a short term exposure to interest rate fluctuations.

An Adjustable Rate loan doesn’t act like you will have a low rate for a long period, since you agree that the interest will change every six months or year, or whatever you have agreed upon.

In addition to such a wide variety of loans available, there are different types of each one, so that a home loan today can be practically tailor made for the borrower. This is very confusing for the non financial person, so most people wisely choose to consult with a mortgage specialist to make the process easier.

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