Mortgage Loan FAQs | CNB St. Louis Bank

Learn more about common mortgage loan and refinance terms like conventional, ARM, PMI, and more.

What is a conventional, fixed-rate mortgage?

A fixed-rate mortgage is a loan that locks the interest rate for the life of the loan. Your principal and interest payment stays the same for as long as you have your loan. A conventional (conforming) loan is a loan that conforms to established guidelines by Fannie Mae or Freddie Mac. Conventional loans usually require a minimum down payment of 5%.

What is an adjustable rate mortgage (ARM)?

An adjustable rate mortgage, or ARM, is a 30-year loan with an initial fixed-rate period, typically 3 to 10 years. The interest rate may change (up or down) on an annual basis once the initial fixed rate period of the loan expires. This type of loan has limits (or caps) that control the amount the interest rate can adjust up or down. Typically, this type of loan starts out with a lower rate/payment, but can increase quickly after the initial fixed rate period ends. In some cases, this type of loan is beneficial to borrowers, but other times it means a significant payment increase.

What is a jumbo mortgage loan?

A jumbo (non-conforming) mortgage is a home loan with an amount that exceeds conforming loan limits imposed by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy mortgages from lenders. These thresholds are based on averages and change annually. In most parts of the United States, the limits as of January 12, 2024 are $766,550, although they go as high as $1,149,825 in some high-cost counties in the continental United States and Puerto Rico, and higher still in Alaska, Hawaii, Guam, and the U.S. Virgin Islands.

What is Private Mortgage Insurance (PMI)?

Private Mortgage Insurance, or better known as PMI, is an insurance premium that is paid either monthly or one time up-front to offset not having the typical down payment requirement of 20%.

PMI is normally required on any loan that does not have at least a 20% down payment. PMI is an insurance policy that lets you make a lower down payment by insuring the lender against loss if you fail to pay your mortgage.