Conventional loans as the name suggests are all the
loans available in the market through lenders, banks, financial institutions which are not secured by the government. Unlike
FHA loans where government gives insurance as a security, the conventional loans require your own house that you purchase as collateral. In case you default on the payments for a long time the
mortgage lender can take the house and sell it to pay for his loss. These loans fall under Freddie Mac and Fannie Mae lending limits. Some of the types of conventional loans are described below.
Fixed rate mortgage Loan
Fixed interest rate mortgage loan is a widely chosen option but most of the people with
bad credit,
bankruptcy and especially the people with low or moderate income cannot take this option. Unlike FHA loans, it requires a handsome down payment which can be up to 20% of the loan amount. The advantage of this loan is fixed monthly payments which allow a person to adjust his finances in advance.
Adjustable Rate Mortgages Loan
Adjustable rate mortgage has variable interest rate which is mostly fixed for the first several years. After this fixed limit is over the interest rat is adjusted which means it can increase or decrease according to the interest rate of Prime bank through the rest of the remaining term. Some of these adjustable rate mortgages can have balloon term as well.
Balloon Mortgage Loan
Balloon mortgage is a loan in which you are charged with lower monthly payments then the ones required to pay the actual amount of loan borrowed. At the end of your term the loan will still have principle amount and you will have to pay the left amount entirely. An interest only loan is the example of this type of loan. This loan allows people to get a better house and who can afford a large lump sum payment at the end of their loan term.
Biweekly Mortgage Loan
Biweekly mortgage loan is requires you to pay a monthly payment after every 2 weeks instead of paying them at the end of each month. Because of this feature you are able to pay off the interest sooner and the total amount you pay in interest rate is also lower.
Prepayment Penalty on Loans
Unlike FHA loans the conventional loans may also have a prepayment penalty. What happen is that if you get some ready finances and are in a position to pay the remaining amount of loan in one go before the loan term is over the lender will charge you with a fee. This penalty is one of the things that you will need to look for in the loan contract.