A fixed-rate mortgage is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float”. As a result, payment amounts and the duration of the loan are fixed and the person who is responsible for paying back the loan benefits from a consistent, single payment and the ability to plan a budget based on this fixed cost.
With an adjustable mortgage, the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin.
There are many types of ARM loan programs. A standard ARM will adjust its interest rate annually for the life of the loan. More popular ARM programs are the 3/1 and 5/1 ARMs. These loans will hold its initial interest rate at a fixed amount for 3 or 5 years and then have a rate adjustment interval every one year after that time.
Construction loans are usually taken out by a homeowner building their own home. They are short-term loans, usually for a period of only one year. After construction of the house is complete, the borrower can either refinance the construction loan into a permanent mortgage or obtain a new loan to pay off the construction loan (sometimes called the “end loan”). The borrower might only be required to make interest payments on a construction loan while the project is still underway. Some construction loans may require the balance to be paid off entirely by the time the project is complete.
If a construction loan is taken out by a borrower who wants to build a home, the lender might pay the funds directly to the contractor rather than to the borrower. The payments may come in installments as the project completes new stages of development. Construction loans can be taken out to finance rehabilitation and restoration projects as well as to build new homes. Construction loans are usually offered by local credit unions or regional banks. Local financial institutions tend to be familiar with the housing market in their area and are more comfortable making home construction loans to borrowers in their community.
An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender. FHA insured loans are a type of federal assistance. FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI.
A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The VA home loan is one of the best options available for Veterans since there is no mortgage insurance required. The loan may be issued by qualified lenders.
The USDA home loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, is a mortgage loan offered to rural property owners by the United States Department of Agriculture. USDA loans require no down payment and you may finance up to 100% of the property value. With the October 2016 fee reduction on upfront and monthly Mortgage Insurance, the USDA Home Loan has become a better option than FHA.