A mortgage loan indicates that a specific amount of money will be loaned at a specific interest rate for a specific period of time (something lenders refer to as term).

Fixed-Rate Mortgages are the most popular type of mortgage. They offer an interest rate that will remain the same for as long as you have your loan. Stretching out your repayment term means your monthly mortgage payment will be less than it would be with a comparable shorter-term mortgage.

What are the benefits of a fixed-rate mortgage?

• Inflation protection. If interest rates increase, your mortgage and your mortgage payment won't be significantly affected. Even if your taxes or insurance costs go up over time, your basic loan payment (principal and interest) will stay the same. This is especially helpful if you plan to own your home for five or more years.
• Long-term planning. You know what your monthly housing expense will be for the entire term of your mortgage. This can help you plan for other expenses and set long-term financial goals for yourself and your family.
• Low risk. You always know what your payment will be, regardless of what current interest rates are. This is why fixed-rate mortgages are so popular with first-time buyers.

There are additional considerations to be aware of with fixed-rate mortgages:

• Your mortgage interest rate won't go down, even if interest rates drop, unless you refinance your mortgage.
• Because the interest rate is generally higher than other types of mortgage loans, you may not be able to qualify for as large a loan with a fixed-rate mortgage.
• Your total monthly payment can occasionally increase based on changes to your taxes and insurance. In many cases you pay these costs through an escrow account that your lender keeps for you.

Adjustable-Rate Mortgages (ARMs) offer an interest rate that adjusts periodically to keep it in line with changing market rates.

ARMs Offer Lower Rates
Staying in the same home for 30 years may not be in your plans -- which is one reason to consider an adjustable-rate mortgage (ARM). An ARM generally offers a lower initial interest rate than a fixed-rate mortgage. With lower monthly payments in the initial years of your mortgage, you may qualify for a larger mortgage amount if you choose.

If one or more of these situations describes you, an ARM might be a good fit:

• You plan to stay in your home for a relatively short period of time
• You want lower initial monthly payments and can handle potential payment increases in the future
• You want to qualify for a larger mortgage amount, and you expect your income to go up over time

Key Features

• You can select an ARM with a fixed-rate period of up to 10 years. The interest rate and your monthly payment stay the same during the fixed-rate period.
• After that, the interest rate adjusts (usually annually) based on a specific financial index -- for example, one frequently used index is tied to the price of U.S. Treasury bills or securities.
• In addition to the index, an additional percentage, known as a "margin" may be added to the index value to determine your interest rate at the time of adjustment.
• The rate moves up or down, depending on how interest rates have moved since you took out your loan. This means that when interest rates go up, your monthly mortgage payments may go up as well. On the other hand, when interest rates go down, your monthly mortgage payments may also go down. ARMs typically have an interest rate cap (or maximum) on the periodic adjustments and for the life of the loan, so you know that your monthly payment cannot ever increase above a certain amount.
• An adjustable rate is an option that can be used in conjunction with many other Fannie Mae mortgage products, such as Flexible 100TM and Flexible 97®, InterestFirstTM, and Construction-to-Permanent mortgages.
   

Low and No Down Payment options allow for as little as three percent down, or no down payment at all for borrowers with good credit but with minimal funds for a down payment. Some products come with no income restrictions for home buyers with good credit.

Home Improvement loans allow you to buy and renovate a home or repair or improve your home. The amount of the loan is based on the as-completed, appraised value of the home.

Special Financing Mortgages were created for home buyers with special needs, such as low- and moderate-income people who have disabilities or who have family members with disabilities living with them. Also, several mortgages are designed for properties located on Native American tribal land and for houses in rural areas.

Nontraditional mortgages were developed for those with less than perfect credit. If you don't have a credit history established, you may be able to use past utility bills, rental receipts, and other types of statements to show a lender that you pay your bills on time. Aside from a nontraditional credit history, there are products available if you think your credit profile could be improved.

Your credit rating is based on the information in your credit report. This information is converted into a number -- a credit score -- that the lender uses to determine whether you are likely to repay your loan in a timely manner.

The scores used in mortgage lending are typically in the 300 to 900 range. A general guide is that the higher your score the better. But you should keep in mind that your credit score is just one of several factors that will be used to evaluate your mortgage loan application.

It is important to know that your credit score is based solely on information in your credit report. Factors such as race, age, religion, national origin, marital status, gender, income, where you live, and employment are not considered in determining your credit score.

Check whether your employer offers an Employer-Assisted Housing (EAH) program. The EAH loan is commonly used toward your down payment, closing costs, and interest rate buydowns, which can help lower your monthly mortgage payment.

If you qualify, you may consider government loans as a way to finance your dream of homeownership. Agencies that offer such loans are the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and Rural Housing Services (RHS). To get one of these loans, you apply through a lender that is approved to offer them. The property being purchased must meet certain criteria.

There are also state and local housing agencies that make funding available to home buyers. More information about these types of loans is available through your state housing authority or through our state housing agency list.