Besides the standard fixed-rate and adjustable-rate mortgages, there are other types of
mortgages and ways to finance a home, including:
- Jumbo mortgages
- Hybrid mortgages
- Biweekly mortgages
- Assumable mortgages
- Seller financing
Jumbo Mortgage
This is considered a nonconforming loan, because it exceeds the loan limit set by Fannie Mae
and Freddie Mac, the two publicly chartered corporations that buy mortgage loans from
lenders, thereby ensuring that mortgage money is available at all times in all locations
around the country. The 1998 single-family loan limit is $227,150. If you need to borrow
more than that, you will need a jumbo mortgage, which generally has a higher interest rate
than "conforming" loans. See the latest Bankrate.com survey of jumbo mortgage rates.
Hybrid Mortgages
These are mortgages that combine elements of fixed and adjustable-rate mortgages. One
example would be Fannie Mae's two-step mortgage. It is a special type of ARM because it
adjusts only once -- either at five years or at seven years. After that initial adjustment,
the mortgage maintains a fixed rate for the remaining years of a 30-year repayment term.
This new rate can never be more than six percentage points higher than your old rate. There
are no limits on how much lower the adjusted interest rate can be. At the adjustment date,
there is no additional refinancing cost, no forms to complete, and no re-qualification
necessary.
Another example is a balloon mortgage. Here the borrower makes initial payments at a lower
fixed interest rate for a specified period of time, usually from three years to 10 years.
After that period, the principal balance of the loan is due as a lump sum payment. Under
certain conditions, however, balloon mortgages can be converted at that point to a
fixed-rate or adjustable-rate mortgage.
Biweekly Mortgage
This is a fixed-rate mortgage where the monthly payment amount is split into two payments
scheduled every two weeks. This results in 13 payments each year, which shortens the length
of the 30-year loan to 18 or 19 years, and greatly reduces the amount of interest paid on
the mortgage.
Assumable Mortgage
This is an agreement where the buyer of the home assumes the payment of an existing mortgage
from the seller. This could be attractive for the buyer if the interest rate on the
assumable mortgage is lower than the current market rate. Also, there are few closing costs.
For the seller, an assumable mortgage may speed up the sale of the property. Unless
specified, however, the seller could remain secondarily liable for payments.
Seller Financing
This is an agreement where the seller of the home provides financing to the buyer. The buyer
makes monthly payments to the seller instead of the bank. The promissory note is secured by
the property. This type of financing often includes an assumable mortgage.