Fannie Mae is the common name of the Federal National Mortgage Association.  Fannie Mae is a congressionally chartered, shareholder-owned company that buys mortgages from lenders and resells them as securities on the secondary mortgage market.

Before approving you, Fannie Mae looks at a number of factors including credit ratings, debt ratio, and employment history.  Loans that are approved via Fannie Mae should qualify for a better rate.

Freddie Mac is the common name for the Federal Home Loan Mortgage Corporation.  The 2004 maximum loan amount for both Fannie Mae and Freddie Mac is $333,700.  Freddie Mac does not issue mortgages directly, rather, they buy mortgages from lenders and sell them as securities on the secondary mortgage market.

Before approving you, Freddie Mac looks at a number of factors including credit ratings, debt ratio, and employment history.  Like Fannie Mae, loans that are approved via Freddie Mac should qualify for a better rate.

Fixed Rate Mortgages
The traditional fixed rate mortgage is the most common type of loan programs, where monthly principal and interest payments never change during the life of the loan.

Adjustable Rate Mortgages (ARM)
Adjustable Rate Mortgages (ARM)'s are loans whose interest rate can vary during the loan's term.  These loans usually have a fixed interest rate for an initial period of time and then can adjust based on current market conditions.

Hybrid ARMs (3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM)
Hybrid ARM mortgages, also called fixed-period ARMs, combine features of both fixed-rate and adjustable-rate mortgages.

Interest Only Mortgages
A mortgage is called "interest only" when its monthly payment does not include the repayment of principal for a certain period of time.

Components of an ARM
To understand an ARM, you must have a working knowledge of its components.

Commonly Used Indexes for ARMs
This is a list of the most commonly used indexes by ARM lenders.

Balloon Mortgages
Balloon mortgages have a note rate that is fixed for an initial period of time, and then the remaining principal balance is due at the end of the term.

Reverse Mortgages
Reverse Mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership.

Graduated Payment Mortgages
Graduated Payment Mortgage is a loan where the payment graduates (increases) annually for a predetermined period (e.g. five or ten years), and then becomes fixed for the duration of the loan.

What kind of loan program is best for you?
So what kind of mortgage is best for you?  Fixed rate?  Adjustable rate?  Government loans?  The truth is, there is no one correct answer.