Everything You Need To Know About Mortgage Loans Part 3

• Definition: Mortgages that exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA) (e.g., $766,550 in most U.S. areas in 2025, higher in high-cost regions).
• Key Features:
  • Used for expensive properties.
  • Stricter credit, income, and down payment requirements (often 10%-20% down).
  • Can be fixed or adjustable-rate.
• Advantages:
  • Allows financing for luxury homes or properties in high-cost markets.
• Disadvantages:
  • Higher interest rates and larger down payments.
  • Harder to qualify due to stringent standards.
• Best For: High-income buyers purchasing expensive homes.

• Definition: A loan where the borrower pays only the interest for an initial period, after which payments increase to include principal.
• Key Features:
  • Lower initial payments during the interest-only period (e.g., 5-10 years).
  • After the period ends, payments rise significantly as principal repayment begins.
  • Often structured as an ARM.
• Advantages:
  • Lower early payments can free up cash flow.
  • Useful for short-term ownership or investment properties.
• Disadvantages:
  • No equity buildup during the interest-only phase.
  • Sharp payment increases later.
• Best For: Investors or buyers with irregular income expecting a future financial boost

Balloon Mortgage

• Definition: A loan with low monthly payments for a short term (e.g., 5-7 years), followed by a large “balloon” payment to pay off the remaining balance.
• Key Features:
  • Fixed or adjustable rates.
  • Requires refinancing or selling the home to cover the balloon payment.
• Advantages:
  • Low payments during the term.
  • Can work for short-term homeowners.
• Disadvantages:
  • Risk of inability to refinance or sell when the balloon payment is due.
  • High final payment.
• Best For: Borrowers planning to move or refinance before the balloon payment.

Reverse Mortgage

• Definition: A loan for homeowners (typically 62+) that allows them to convert home equity into cash without selling the home.
• Key Features:
  • No monthly mortgage payments; the loan is repaid when the homeowner sells, moves out, or passes away.
  • Loan amount based on age, home value, and equity.
  • Interest accrues over time, reducing equity.
• Advantages:
  • Provides income for retirees.
  • Allows staying in the home.
• Disadvantages:
  • High fees and interest costs.
  • Reduces inheritance for heirs.
• Best For: Seniors needing supplemental income in retirement.