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Mortgage Basics
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Other types of mortgages

The mortgage market is much more diverse than some borrowers think.

Besides the standard fixed-rate and adjustable-rate mortgages, there are other types of mortgages and ways to finance a home.

1. Jumbo mortgage

This is considered a nonconforming loan because it exceeds the loan limit set by Fannie Mae and Freddie Mac, the two publicly chartered corporations that buy mortgage loans from lenders, thereby ensuring that mortgage money is available at all times in all locations around the country. The single-family limit changes annually, and the current limit is always posted on Bankrate. If you need to borrow more than that, you will need a jumbo mortgage, which generally has a higher interest rate than a conforming loan. Bankrate.com also surveys jumbo mortgage rates.

Pro: Opportunity to buy larger, more expensive home.
Con: Pay a higher interest rate in exchange for the lender's higher risk.

2. Two-step mortgage

These are mortgages that combine elements of fixed- and adjustable-rate mortgages. They go by confusing names such as 2/28, 5/25 or 7/23. A two-step mortgage features a fixed rate and payment for an initial period, followed by one adjustment, then a fixed rate and payment for the remainder of the loan term. A 7/23, for example, has an initial fixed period of seven years, an adjustment and then 23 more years of payments following the adjustment.

Pro: Opportunity for damaged-credit borrowers to buy homes and to establish better credit.
Con: If your credit does not improve, you could be stuck in a high-rate loan for much longer than two or three years.

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Mortgage Overnight Averages
Product Rate +/- Last week
30 yr fixed mtg
3.77% 3.60%
15 yr fixed mtg
2.88% 2.74%
5/1 ARM
2.66% 2.54%
30 yr fixed mtg refi
3.76% 3.58%
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