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The Mortgage Go-Round

By David Reed

There are lots of mortgage programs out there. And when I say lots, I mean lots and lots. What are all these different types of home loans? There are far too many to individually mention here but they basically fall into one of two categories: fixed rate loan and an adjustable rate loan. That’s fairly straightforward. A loan is either fixed or adjustable and that’s pretty much about it. So why do lenders offer more than just a couple of loan programs that are either fixed or adjustable?

First, let’s understand that mortgage lenders typically don’t hold onto the loan once it becomes officially closed. Lenders must sell the loans they issue if they want to make even mortgage home loans. There are only a handful of entities that buy home loans but one thing they have in common is the loans they buy are pretty much the same. If it’s a fixed rate loan, then only the loan term needs to be identified. Most borrowers select the 30 year fixed variety. Lots of options and all lenders offer them. The same can be said for 25, 20, 15 and 10 year loans. So why are there so many choices?

Some loan programs might fill some sort of niche. Loans designed for physicians for example or loans identified as those for first time homebuyers. But lenders have way more loan offerings than those two.  Lenders might offer a ‘hybrid’ type loan which is in essence an adjustable rate mortgage that is fixed for the first few years before turning into an adjustable rate loan for the remaining term.

Lenders like to offer these variants because it makes them look like they’ve got a treasure chest full of loan products. And they do, but in essence they all offer the same set of mortgage programs. That also means that one lender can’t offer a 30 year fixed rate loan that is a full percentage point or two lower than everyone else. There are mortgage companies described as ‘portfolio’ lenders who can offer mortgage products outside the standard fare but again these products are aimed at a specific group of borrowers.

With so many offerings it can be fairly confusing quickly. But it doesn’t have to be that way. Speaking with a loan officer very early on there’s an opportunity to decide which program best suits your needs. Once you’ve identified the loan type you want, stick with it and then start getting some quotes. Don’t let the multitude of choices confuse you. A good loan officer will walk you through available programs and provide pros and cons for each time. Just don’t get lost in the sea of selections.