The traditional fixed rate mortgage is the most common type of loan program, where monthly principal and interest payments never change during the life of the loan. Fixed rate mortgages are available in terms ranging from 10 to 30 years and in most cases can be paid off at any time without penalty. This type of mortgage is structured, or “amortized” so that it will be completely paid off by the end of the loan term.
A conventional loan refers to a mortgage that is not insured or guaranteed by any government agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). Instead, conventional loans are originated and funded by private lenders, including banks, credit unions, and mortgage companies. These loans typically require higher credit scores and down payments compared to government-insured loans. Conventional loans offer a variety of terms and options, including fixed-rate and adjustable-rate mortgages, making them a popular choice for borrowers who have strong credit histories and financial stability.
Even though you have a fixed rate mortgage, your monthly payment may vary if you have an “impound account”. In addition to the monthly “principal + interest” and any mortgage insurance premium (amount charged to homebuyers who put less than 20% cash down when purchasing their home), some lenders collect additional money each month for the prorated monthly cost of property taxes and homeowners insurance. The extra money is put in an impound account by the lender who uses it to pay the borrowers’ property taxes and homeowners insurance premium when they are due. If either the property tax or the insurance happens to change, the borrower’s monthly payment will be adjusted accordingly. However, the overall payments in a fixed rate mortgage are very stable and predictable.
