Home Loans - What’s in the name?

By: Rajeev K


If you are or have been in the market for borrowing money for a home, the chances are that you already know the different types of home loans that are available. Behind the names there are some 'technicalities' that impact the amount the interest payments you may be making over the life of a loan. Taking the right type of loan can save you big money and it pays to do some your homework before signing up a contract with your lender. On a $600k loan with 5.163 APR, you will pay around $55k more in interest in 30 years as compared to a loan with 4.471% APR.

Non-government assisted (conventional) home loans are divided between "conforming," "jumbo," and in "super jumbo" loans. Conforming loans limits are set by Fannie Mae and Freddie Mac. These loans limits are changed with time and depend on various economic factors. For single unit home, the general limit for contiguous state is $417,000 and it is $625,000 for high-cost areas. You can find out more details on limits for other units and non contiguous states at FannieMae web site (http://www.fanniemae.com/portal/about-us/loan-limits/index.html?).

If are able to afford a house that cost more than the conforming loan limits, you will need to get a "Jumbo," or even "Super Jumbo" loan. When conforming loan limits do not cover the full loan amount then the loan is referred to as a "jumbo loan". Interest rates on "Jumbo" loans are significantly higher than on a corresponding conformer. It is not unusual to have interest rates for 30-year fixed jumbos half a percentage point higher than a rival 30-year fixed conforming loan. Over the life of the loan, half a percentage point makes a big difference. You can find the complete list of Jumbo Loan rates at bankrate.com.

"Super jumbo" criteria are kind of fuzzy, and different lenders have their own way of classifying loans in that bucket. Some place the jumbo/super jumbo divide at $700,000, while others peg it at about $1 million. Super jumbos have much higher interest rate than conforming loans.

There are many other categories of loans, as there are of government-assisted loans. But for non-government loans, conforming and jumbo loans are the most common.

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Author of this article has vast knowledge in financial field and he want to share his knowledge about financial planning with other people by his articles. For more information about personal financial planning please visit here: https://www.mytafi.com/

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