TYPES OF
Mortgages

Get To Know the Many Mortgage Options Available at Police Mortgage, created for First Responders Who Are Second to None!

What is a Fixed-Rate Mortgage?

A Fixed-Rate Mortgage features a set interest rate that stays the same through the entire term of the loan.

The rate included on your closing disclosure is the same rate you’ll have for the length of your repayment term, unless you refinance your mortgage.

Two common fixed-rate options are 15- and 30-year mortgages. Unlike some other types of mortgage loans that have variable rates, fixed-rate loans offer more stability and predictability to help you better budget for housing costs.

Pro:
Predictable monthly payments.

Con:
Potential future refinance to take advantage of lower rates.

Best For:
Buyers planning to stay in their homes longer.

Mortgages are not one-size-fits-all.
There are many home loan options, which
are designed to appeal to a wide range of borrower needs.

Conventional Mortgages

30-, 25-, 20-, 15-, and 10-year fixed rate, fixed terms; loan amounts up to $726,199; 3% down programs

A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration or Department of Veterans Affairs).

Conventional loans have higher minimum credit score requirements than other loan types — typically 620 — and are harder to qualify for than government-backed mortgages. Borrowers who make less than a 20% down payment are typically required to pay private mortgage insurance (PM) on conventional loans.

Conventional loans can be conforming or non-conforming, but the most common type of conventional mortgage is a conforming loan. It adheres to Fannie Mae and Freddie Mac guidelines and has loan limits, which often change annually to adjust for increases in home values.

Best for borrowers with a good credit score.

Jumbo Mortgages

Call for custom quote; loans over $726,200

A jumbo mortgage is a larger conventional loan, typically used to buy a luxury home. Jumbo loan amounts exceed all conforming loan limits and often require a large down payment of at least 20%.

Unlike high-balance conforming loans, Jumbo loans don’t conform to the guidelines put in place by Fannie Mae and Freddie Mac, and they also allow you to potentially borrow more, perhaps $1 million or more, if you’re eligible. Jumbo mortgage rates are, on average, close to those of conventional loans.

Best for borrowers with excellent credit looking to buy an expensive home.

FHA loans

30- and 15-year fixed rate, fixed terms; 96.5% financing

The Federal Housing Administration (FHA) insures these types of mortgage loans, which are created for those with credit blemishes and limited down payment funds. You can qualify with an FHA loan with a 620 credit score and a minimum of 3.5% down payment.

FHA loans have mandatory mortgage insurance premiums. If you put down less than 10%, you’ll pay FHA mortgage for the life of your loan — unless you refinance into a conventional loan after building at least 20% equity. Otherwise, you’ll only pay it for 11 years if you put down at least 10%.

Best for borrowers who have lower credit scores and minimal cash for a down payment.

VA loans

30- and 15-year fixed rate, fixed terms; 100% financing

Military servicemembers, veterans and eligible spouses may qualify for a loan backed by the U.S. Department of Veterans Affairs (VA).

Typically, VA loans don’t require a down payment. Notwithstanding the VA not having a minimum credit score requirement, VA lenders usually require a minimum 620 credit score. Also, the VA no longer has loan limits for borrowers who have never used their VA loan benefits or have paid their existing VA loans in full.

Best for veterans or active military who have lower credit scores and minimal cash for a down payment.

Home Equity Loans

Fixed rate home equity loan; Variable rate line of credit

A second mortgage is a type of mortgage loan allowing you to borrow against the equity you’ve built in your home over time. Like to a first mortgage, which you use to buy a home, a second mortgage is secured by your home. However, a second mortgage takes a subordinate position to a first mortgage, i.e. it’s repaid after a first mortgage if there is a foreclosure sale.

Both home equity loans and home equity lines of credit (HELOCs) are types of second mortgages.

A home equity loan is a lump-sum amount. It comes with a fixed interest rate and is repaid in fixed installments over a set term.

A HELOC is a revolving credit line with a variable rate that works similarly to a credit card. The funds can be used, repaid and reused for a set period as long as access to the credit line is open.

Best for those interested in accessing a large amount of cash using their home as collateral. These loans often come with low interest rates, plus a tax benefit. You can use a second mortgage to finance home improvements, pay for higher education costs, or consolidate debt.

Home Equity Loans

Learn more about home equity loans and HELOCs in the Mental Fitness section of Patrolmen’s Dispatch with the following article, Use Your Home Equity Wisely, written by Scott Arney, CEO, Chicago Patrolmen’s Federal Credit Union.

Summary

First-time homebuyers

A second mortgage is a type of mortgage loan allowing you to borrow against the equity you’ve built in your home over time. Like to a first mortgage, which you use to buy a home, a second mortgage is secured by your home. However, a second mortgage takes a subordinate position to a first mortgage, i.e. it’s repaid after a first mortgage if there is a foreclosure sale.

Both home equity loans and home equity lines of credit (HELOCs) are types of second mortgages.

A home equity loan is a lump-sum amount. It comes with a fixed interest rate and is repaid in fixed installments over a set term.

A HELOC is a revolving credit line with a variable rate that works similarly to a credit card. The funds can be used, repaid and reused for a set period as long as access to the credit line is open.

Military homebuyers

If you’re eligible for a VA loan, you will be able to waive the down payment and mortgage insurance requirements. VA loans, available for military service members, veterans and their surviving spouses, also include a cap on closing costs.

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