Types of Loans Flashcards
Fixed-Rate Mortgage (FRM): A fixed-rate mortgage is a loan in which the interest rate remains the ________ throughout the life of the loan. This type of mortgage typically has a term of 15 or 30 years. The advantage of an FRM is that you always know what your monthly payment will be, making it easier to budget for your home. The disadvantage is that if interest rates drop, you may be stuck with a higher rate.
same
Adjustable-Rate Mortgage (ARM): An adjustable-rate mortgage is a loan in which the interest rate ________ over time, based on market conditions. This type of mortgage typically has a ________ initial interest rate than an FRM, but the rate can increase over time. The advantage of an ARM is that you may be able to get a lower interest rate initially, which can save you money in the short term. The disadvantage is that you may end up paying more in the _______ term if interest rates rise.
Fluctuates
Lower
Long Term
FHA Loans: FHA loans are mortgages that are insured by the Federal Housing Administration (FHA). These loans are designed to help people with ___________ credit scores or limited ________ payment funds to buy a home. The advantage of an FHA loan is that it may be easier to qualify for than a traditional mortgage. The disadvantage is that you may have to pay mortgage insurance premiums (MIP) for the life of the loan, which can add to the overall cost.
Lower
Down
VA Loans: VA loans are mortgages that are guaranteed by the Department of Veterans Affairs (VA). These loans are available to eligible ____________, active-duty service members, and their ______________. The advantage of a VA loan is that it may be easier to qualify for than a traditional mortgage and may require __ down payment. The disadvantage is that there may be additional fees associated with the loan.
vetrans
spouses
no down payment
Jumbo Loans: Jumbo loans are mortgages that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. These loans are typically used to finance expensive homes. The advantage of a jumbo loan is that it may allow you to buy a home that you wouldn’t otherwise be able to afford. The disadvantage is that jumbo loans typically have higher ________ rates and may be harder to qualify for
Interest rates
Balloon Loans: A balloon mortgage is a loan that has a relatively short term (typically 5 to 7 years) with a large payment due at the ______ of the term. The advantage of a balloon loan is that it may have lower monthly payments than a traditional mortgage. The disadvantage is that you’ll have to make a large payment at the end of the term, which can be difficult to afford.
end of the term
Home Equity Loans: Home equity loans are a one-time lump sum loan that is paid back in fixed monthly payments over a set period of time, usually with a fixed interest rate. The loan amount is based on the amount of equity the borrower has in their home at the time of the loan. T/F
T
Home Equity Lines of Credit (HELOCs): HELOCs are a revolving line of credit that is secured by the borrower’s home. Borrowers can draw from the line of credit as needed, and interest is only charged on the amount borrowed. HELOCs typically have variable interest rates and may have fees and limitations on how much can be borrowed. T/F?
T
Cash-Out Refinancing: Cash-out refinancing involves taking out a new mortgage that is larger than the existing mortgage, and using the extra cash to pay off other debts or to make home improvements. The interest rate on the new mortgage may be higher or lower than the existing mortgage, depending on the current market conditions and the borrower’s credit score. T/F?
T
Reverse Mortgages: Reverse mortgages are a type of loan that allows homeowners who are 62 years of age or older to convert the equity in their home into cash. Unlike other types of mortgage loans, there are no monthly payments required with a reverse mortgage, and the loan is typically repaid when the borrower sells the home or passes away. Interest on the loan accrues over time and is added to the loan balance. T?F?
T
- What is a key advantage of VA loans?
- a) High-interest rates
- b) No mortgage insurance required
- c) Large down payment required
- d) Only available for non-military borrowers
- Answer: b) No mortgage insurance required
- Explanation:VA loans typically do not require mortgage insurance and may require no down payment.
