Conventional Mortgages

What is a conventional home loan?

Conventional home loans are mortgages for loan amounts that are $417,000 or less in most regions and are typically backed by Fannie Mae or Freddie Mac. Conventional mortgages offer the option of either a fixed or adjustable rate of interest, and anywhere from a five-year to a thirty-year loan term.  Conventional loan borrowers typically have good credit, savings for a downpayment or equity in their home, and a history of stable income.  For qualified borrowers with less money to put down, we offer conventional loans up to 97% loan-to-value.

Fixed-Rate Mortgage

A fixed-rate mortgage is a loan with an interest rate that is set at the time the loan is made and remains at the same rate for the entire life of the loan. When interest rates are low, as they have been recently, a fixed rate mortgage gives you the security and peace of mind knowing that your principal and interest payment will remain constant.  The two most popular fixed-rate loan terms are fifteen and thirty years, but other loan terms are available.

A 30-year fixed rate mortgage, long the most popular mortgage option, has an interest rate that remains fixed for the life of the loan. Because of the extended term of the loan, the homeowner enjoys the lowest monthly payment amount. Its primary advantages are maximum buying power and a principal and interest payment that will remain constant for thirty years.

Fifteen-year fixed-rate loans provide the same payment stability as a thirty-year fixed-rate mortgage but with the benefit of substantially reduced interest payments over the life of the loan.  More of the monthly payment is applied to paying down principal, resulting in a faster accumulation of equity in the home.  Rates are typically lower for a shorter-term mortgage, as well, so the industry has seen a substantial number of homeowners refinancing from a 30-year mortgage to a 15-year recently.

Adjustable Rate Mortgage (ARM)

An adjustable-rate mortgage, or, more commonly, an ”ARM,” is a home loan product that allows the borrower to receive the lowest home mortgage interest rates available in the marketplace by fixing the Note rate for a set period of time, usually 3, 5, or 7 years, after which time the interest rate may adjust with the market. Many homeowners choose an ARM to take advantage of immediate monthly savings, whether because they plan to move in the next few years, because they have the resources to pay off their mortgage but would like to retain the tax benefit of a home loan, or because the risk of a higher rate later is worth the very low rate now.  The amount that the interest rate can adjust after the initial fixed period will depend on the market; some homeowners have discovered that their interest rate may actually go down at the first adjustment.  Each ARM product features adjustment caps to protect the homeowner from payment shock when these adjustments take place, in the event market interest rates rise dramatically.  In most cases, the interest rate on an ARM is not allowed to go up or down more than 2% per year and 5-6% over the entire term of the loan.

To learn more details and to get prequalified for a Conventional loan, please contact your local Midwest Mortgage Capital Mortgage Consultant or apply online.