Learn something new every day
More Info... by email
Conventional mortgages are mortgage arrangements that meet the standards set in place by a government. In the United States, the terms and conditions that are associated with such mortgage options as Freddie Mac and Fannie Mae are examples of a conventional mortgage. Generally, a conventional mortgage will account for a high percentage of the mortgages that are granted in a given calendar year, often anywhere from a third to half of the total mortgages written during the period.
The conventional mortgage may be written as either a fixed rate mortgage (FRM) or carry a variable rate structure. With the FRM, interest rates are fixed with a monthly principal and interest payment making up the total due for each monthly installment. The monthly payments will remain the same amount for the duration of the mortgage.
When a variable interest rate is applied to the conventional mortgage, the exact amount of the payments will vary over time, based on the current standard rates of interest that may be applied under the terms and conditions of the loan. This can be an advantage for the borrower, if the projections are that the standard rate of interest will occasionally dip below a certain level during the life of the mortgage. Another positive indicator that a conventional mortgage with a variable rate may be a good deal is when projections lean toward the interest rate not moving above the standard rate that is in effect at the time the mortgage goes into effect.
In general, there are a number of companies that offer a conventional mortgage to first time home buyers. Some of these companies offer mortgage offerings that are bundled into what is commonly known as mortgage backed securities, and trade in the TBA or To Be Announced market. At the same time, a conventional mortgage may be based on pass through securities that are bundled and offered for investment as collateralized mortgage obligations. While the actual backing of the mortgage may not be a direct point of interest to the homeowner, the mode of backing may impact the quality of the fixed and variable rates that the borrower can expect to receive.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!