Difference between Fixed,ARM,VA,FHA mortgages – Housing loans are taken against your property.This means,the property you are trying to purchase is being used as a collateral or as security or surety against which the mortgage is being provided.
IF you fail to repay the mortgage midway of the term,the lender can re possess this property,because technically-they own it adn until you pay off the loan completely the lender owns it,you are just in possession of it.
Adjustable rate mortgage loan is a housing loan in which the interest rate “adjusts” after the initial offer period.This is initial offer period can be either 3 years,5 years,7 or 10 years (3/1 ARM – 5/1 ARM etc) out of the total 25 or 30 years term.In this initial period a lower interest is given and then increases after the period ends.
This type of loan is good for people who expect their incomes to rise after a few years.People with stable corporate jobs who will rise up the hierarchical corporate ladder wit promotions are best suited to this type of loan.Also those people who want to save some money initially can apply for this loan.
The difference between this and a fixed rate loan is obvious – fixed rate loans never change their interest rate over the period of the term unlike the ARM mortgage loan that starts off low and then increases after the offer period ends.
What Is a Fixed Rate Mortgage?
These types of mortgage for your house loan is also known as a static loan because the rate of interest does not fluctuate over the term of the loan.Mortgage rates in the US hover around the 3% mark for entire length of the mortgage which maybe 25 or 30 years.
This type of mortgage is for people who already have a stable income with a good job and who may want to refinance their home at a later date.In ARM,the rate of interest fluctuates after the initial introductory offer and can also go up depending on various market conditions.
In fixed mortgages,the monthly payout is fixed and over a period of time you will find it easier to clear the outstanding.These types of loans are less risky compared to ARM because they are considered less volatile and are favoured by both lenders and borrowers.
What Is an FHA Loan?
These types of loans are backed by the Federal Housing Administration hence the name and is of great use for people with low credit scores and low incomes.They are considered slightly more risky than traditional loans,but since it is insured by a government entity the lenders are secured.
Some of the main advantages of an FHA loan are smaller down payments,low prepayment fees,but on the down side,they are limited loans.
What Is a VA Loan?
These types of loans are only for veterans,people from military,navy sailors etc.They maybe extended to spouses of these veterans also and are limited loans to about $450,000.They are designed for lower income groups with easy pre payments with 0 closing costs and low down payments.