Step 2 : The Mortgage Part II

Anthony Pierpont
Anthony Pierpont

Anthony Pierpont

There are really only two types of loans for homes today.  The first is the Fixed Rate Mortgage or FRM.  The Second is the Adjustable Rate Mortgage or ARM.  First let’s talk about the FRM.  The most common of these is the 30 year FRM.  The United States and Denmark are the only two countries in the world that have this length of home loan.    The reason for this length of mortgage in the United States is the government’s involvement in the home loan business.  Left to their own devices banks would prefer to have home loans much shorter.  They really don’t like the idea of putting that money out there for that length of time and thus projecting their profits out that long.  The government gives these banks assurances and incentives for them to do this.  These assurances and incentives comes from two enterprises, for lack of a better word, Fannie Mae and Freddie Mac.  Currently the United States Government has about 90% of these 30 year loans in this country.

You do not have to take a 30 year loan.  You can make your loans shorter and take a 15 year loan or a 20 year loan all fixed rate.  The rule here is the shorter the loan the lower the interest you will pay.  There are also FHA, Federal Housing Administration, and VA, Veteran Administration loans if you qualify.  These two loans are guaranteed the by United States Government and are loans that go to Fannie Mae and Freddie Mac.  FHA has income and housing price restrictions while the VA is for soldiers that served honorably in the Armed Forces. These two types of fixed loans have the benefits of a little lower interest rate and less money down.

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