There are several factors to consider when choosing a mortgage, loan type being one of them. Conventional financing Is one of the more popular options available to borrowers. Whether you're looking to refinance or purchase, it’s important to understand your mortgage options so you can make the best financial decision.
Conventional Loans: What Is It?
The primary feature of a conventional loan, also referred to as conforming loan, is conventional loans are backed by private lenders unlike their government insured counterparts. Conventional financing has several benefits. Eligible borrowers can take advantage of reduced mortgage insurance, flexible lending terms, ability to waive escrows and down payments as low as 3%.
Homebuyers can take out an amortized conventional loan from a bank, a savings and loan, a credit union, or even through a mortgage broker that funds its own loans or brokers them.
Adjustable Conventional Loans
Payments on an adjustable rate means can fluctuate because the interest rate is adjusted periodically to keep pace with the economy. Some loans are fixed for a certain period of time, then they turn into adjustable rate loans. For example, a 3/1 30-year ARM is fixed for three years, then it begins to adjust for the remaining 27 years. A 5/1 ARM is fixed for the first five years. A 7/1 ARM is fixed for seven years before it begins to adjust.
Adjustable mortgages do have a certain appeal however many borrowers still prefer traditional financing terms and tend to gravitate towards fix rates. They prefer to stick with traditional amortized loans so there are no surprises with regard to mortgage payments that will come due down the road. But an adjustable rate mortgage might be just the ticket to help with the early years of payments for borrowers whose incomes can be expected to increase.
Contact one of our mortgage professionals to learn more about Conventional Loans and financing!