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All mortgages are called conventional unless they are government-backed loans. Conventional mortgages are made by private lenders.
Conventional loan, or conventional financing, is a mortgage loan that has a traditional, fixed rate structure. The terms can also refer to mortgages that aren't insured by federal agencies, like the FHA or the VA. Conventional is also sometimes used as a synonym for "conforming," which describes mortgages that are eligible for resale to Fannie Mae and Freddy Mac.
Conventional fixed-rate mortgages:
This traditional mortgage option is a loan with a constant interest rate and level, equal payments during a set period of time, most commonly, 30 years. The biggest selling point of fixed-rate loans is predictability, and they are particularly suited to people with steady incomes. If lower rates dictate the time is right to refinance, it's a good idea to compare the costs of incurring a new mortgage, such as prepayment penalties and loan origination costs. You may want to refinance your loan or pay it off early to eliminate thousands of dollars in interest.
Adjustable-rate mortgages (ARMs):
As the name implies, the interest rate on an adjustable-rate mortgage changes throughout the term to stay current with the present interest rates. ARMs are most popular when rates are relatively high and appear to be dropping and when the difference between the ARM and the fixed-rate is greater than 2 to 3 percent. To make a useful comparison of an ARM rate, consider the index upon which the rate is based, the margin or spread between that index and the rate paid, and the intervals at which the rate and payments are adjusted.
Conventional Loans
