About 35-50% of mortgages, depending on market conditions and consumer trends, are conventional mortgages. Conventional mortgages may be fixed-rate or adjustable-rate mortgages.
A conventional loan is a mortgage agreement that's not guaranteed or insured by the federal government under the Veterans Administration (VA), the Federal Housing Administration (FHA), or the Rural Housing Service (RHS) of the U.S. Department of Agriculture. A conventional loan can, however, follow the guidelines of government sponsored enterprises (GSE's) like Fannie Mae or Freddie Mac. Both Fannie Mae and Freddie Mac are stockholder-owned corporations and are not part of the federal government.
The conventional mortgage may be a fixed rate mortgage (FRM) or carry an adjustable rate structure (ARM). 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 an adjustable 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 an adjustable 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.