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What is a conventional mortgage?

A conventional mortgage is a plain-vanilla home loan that’s ideal for borrowers with good or excellent credit. These can carry a fixed rate or carry an adjustable rate. They are offered through private banks and are not backed by government agencies such as the Federal Housing Administration and the Department of Veterans Affairs.

Conventional mortgage loans are taken out to buy a home or refinance an existing home loan. Also known as traditional loans, these mortgages can carry a fixed rate, such as the 30-year fixed-rate mortgage, or a variable rate, such as the 5/1 adjustable-rate mortgage (ARM).

In addition, they follow guidelines set by Fannie Mae and Freddie Mac, companies that buy mortgages on the secondary market in the U.S.

However, conventional mortgage rates aren’t as good at loans backed by the FHA and VA. Still, these government-backed loans have restrictions that limit who can get them.

On the other hand, conventional mortgages place more risk in the hands of the bank or credit union, which can make them a bit more challenging to obtain for some borrowers.

TODAY’S ADJUSTABLE RATE MORTGAGES ARE A LOT DIFFERENT THAN THEY WERE IN THE PAST. AND THEY MAY BE THE BEST CHOICE FOR YOUR PURCHASE OR REFINANCE.

ARMs are smarter

Most people only stay in their mortgage for 5 to 7 years. Why not go for the lower rate? With an ARM, more of your payment goes toward the principal, so you pay down your mortgage faster. ARMs are safer, no longer feature pre-payment penalties, so you can easily refinance.

You’ll never have to worry about a big balloon payment. ARMs can save you money!

  • Flexible payment options

  • Make home ownership more affordable

  • Save cash for other investments or expenses

  • Pay down your principal balance quicker

  • ARMs offer lower initial rates that are fixed for 3, 5, 7, or 10 years – longer than most people stay in their mortgage

  • No big balloon payment and no pre-payment penalties, so it’s easy to refinance