The Basics of a Conventional Mortgage Loan

A Home Buying Article Contributed by Elizabeth Fox-Wise

A Conventional Mortgage Loan is Secured by a Government Sponsored Lender

Several decades back, the US government started sponsoring major mortgage loan lenders in an attempt to make the mortgage loan process easier for the home buyer. As a result of the government mortgage loan movement, the majority of mortgage loans taken today are backed by one of a few lenders who are government sponsored.

Typically, these government sponsored mortgage loan lenders have a maximum limit that they will consider lending for a home during any given year. The figures are periodically reviewed and revised to reflect the current housing prices. In 2004, the limits for a conventional mortgage loan were set at $333,000 for a one family home, $427,000 for a two family home, $516,000 for a three family home, and $641,000 for a four or more family home.

If a home buyer wishes to secure a conventional mortgage for a home that costs more than these guidelines, the balance between the maximum conventional mortgage loan amount and the cost of the house would have to be paid in advance as a down payment on the home.

To secure a mortgage loan for more than this amount, you would have to get a Jumbo loan and they are not available from these government sponsored mortgage loan lenders.

A Conventional Mortgage Loan May Have a Fixed Interest Rate

A fixed rate conventional mortgage loan is still the most common. Although a variable rate mortgage loan may offer a more appealing interest rate, many homeowners prefer a fixed rate mortgage where they know their monthly payment will remain pretty stable for the whole life of the mortgage loan.

Fixed rate conventional mortgage loans are available with repayment choices of thirty years, twenty years, fifteen years and ten years. The most common fixed rate mortgage loans are either thirty or fifteen years.

A conventional fixed rate mortgage loan is characterized by an interest rate that remains fixed for the entire life of the loan. Therefore, the monthly mortgage loan payments stay the same (except for changes in taxes) for the life of the mortgage loan.

A Conventional Mortgage Loan Can Have an Adjustable Interest Rate

The second most popular mortgage loan is an adjustable rate mortgage. An adjustable rate mortgage usually starts out operating like a fixed rate mortgage at the beginning. Introductory Interest rate can be locked in for one, five, or even seven years and then mortgage loan comes up for review at predetermined intervals (often, but not always, once a year) and interest rate is adjusted up or down to reflect the current market rates.

Because the interest rate is not guaranteed for the life of the loan, you can usually get a conventional variable rate mortgage loan at a lower interest rate than a fixed loan. However, also because the rate is adjustable, there is no way to predict the amount of monthly payments in one year, five years, ten years, etc.