Definition of 'Conventional Mortgage'
The most common type of conventional mortgage is a 30-year fixed-rate mortgage. With this type of loan, the interest rate remains the same for the entire term of the loan, which typically lasts for 30 years. This can provide peace of mind for borrowers, knowing that their monthly payments will not change.
Another type of conventional mortgage is an adjustable-rate mortgage (ARM). With an ARM, the interest rate can change over time, based on an index such as the LIBOR rate. ARMs typically have lower initial interest rates than fixed-rate mortgages, but borrowers should be aware that their monthly payments could increase in the future.
Before you apply for a conventional mortgage, it's important to compare interest rates from different lenders. You should also consider the different types of mortgages available, and choose the one that best meets your needs.
Here are some of the benefits of a conventional mortgage:
* Higher loan limits: Conventional mortgages have higher loan limits than government-backed loans. This means that you may be able to borrow more money to buy a home.
* More flexible underwriting: Conventional mortgages have more flexible underwriting standards than government-backed loans. This means that you may be able to qualify for a conventional mortgage even if you have less than perfect credit.
* Lower closing costs: Conventional mortgages typically have lower closing costs than government-backed loans.
Here are some of the drawbacks of a conventional mortgage:
* Higher interest rates: Conventional mortgages typically have higher interest rates than government-backed loans.
* More risk: Conventional mortgages are not backed by the government, so lenders take on more risk when they make these loans. This can lead to higher interest rates.
* More fees: Conventional mortgages typically have more fees than government-backed loans.
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