Fannie Mae and
Freddie Mac are the two publicly chartered
corporations that buy
mortgage loans from the
primary mortgage market, that is, the lenders
who make the loans to you. They do this to boost
home purchase and stimulate residential housing
construction by purchasing loans from
conventional lenders and selling them to private
investors. Besides the standard
fixed rate and
adjustable rate mortgages, there are other types
of mortgages available:
·
Jumbo mortgages
·
Hybrid mortgages
·
Biweekly mortgages
·
Assumable mortgages
·
Seller financing
Jumbo Mortgages
Loan limits are
set by Fannie Mae and Freddie Mac, and are
adjusted annually by Congress to reflect changes
in prevailing price of average property. For
example, the current single-family loan limit is
$417,000. Mortgages that exceed the maximum
allowable loan amounts are considered jumbo
loans, also known as nonconforming loans. These
types of loan have a higher interest rate and
generally require a larger
down payment.
more
Hybrid Mortgages
Hybrid mortgages
combine elements from both a
fixed rate mortgage
and an
ARM. There are different types; some
hybrid loans begin as a
fixed rate loan, where
the initial rate is fixed for a period of three
to ten years, after which the loan converts to
an
ARM, and adjusting every six to twelve months
thereafter. Other types of hybrid loans may
begin as a
fixed rate loan and then have a
one-time adjustment, and remain at a
fixed rate
thereafter. At the adjustment date, there is no
additional refinancing cost or need to
re-qualify.
Still another
example of a hybrid loan is the balloon
mortgage. In this loan, the borrower makes
initial payments at a lower
fixed rate for a
specified period of time, usually from three to
ten years, after which the principal balance is
due as a lump sum. Under certain conditions, a
balloon mortgage can be converted to either a
fixed rate or adjustable rate mortgage.
Biweekly
Mortgages
A
biweekly
mortgage is a
fixed rate loan in which payments
are made every other week, instead of monthly.
In this case, the monthly payment is divided in
two and that amount is paid every other week.
You are basically making 26 half payments a
year, the equivalent of 13 monthly payments,
with the 13th monthly payment going entirely
towards paying off your principle balance. If
done correctly, this can dramatically shorten
the life of your mortgage, taking years off the
length of your loan.
more
Assumable
Mortgages
This is a
transaction where the mortgage is transferred to
the new buyer of a home. This could be
advantageous for the buyer if the interest rate
on the assumable mortgage is lower than the
current market rate, and can help a seller to
speed up the sale of a property. Generally,
ARMs
are assumable, and
fixed rate mortgages are not.
When shopping for an
ARM, be sure it is fully
assumable an unlimited number of times with the
same interest rate caps.
Seller Financing
This is an
agreement between the seller of a home and the
new buyer. The buyer will make direct payments
to the seller, thereby bypassing the bank or
other mortgage lender. This type of financing
often involves assumable mortgage.
Mortgage Glossary1
