Types of Mortgage Loans

A Wide Array of Mortgage Loans

Way back when the real estate industry was quite simple, there were only three types of mortgage loans: the conventional fixed-rate mortgage, a VA loan, and an FHA loan. As the years pass, more and more types have been devised to cater to the various needs and preferences of borrowers. Below are some of the various forms.

Common Types of Mortgage Loans

Fixed-Rate Mortgage Loans. This is the forerunner of all forms of mortgage loans. Once you decide to take on this loan, you have to choose the term, whether 10, 15, 20, 30, 40 or even 50 years. All of them are fully amortized.

VA Loans. This government loan is specially formulated for veterans who were in the service of the United States Armed Services, and in some instances, spouses of deceased veterans. One good thing about this type of mortgage loan is that it is unnecessary for the borrower to make a down payment. Although traditional lenders back this type of loan, the Department of Veteran Affairs guarantees the loan.

FHA Loans. If it is your first time to buy a home, then this government-insured type of mortgage loan may be most suitable to you. It includes minimal down payment requirements and FICO scores are immaterial.

Interest-Only Mortgage Loans. Do not let its name deceive you. Although it is called “interest-only mortgage”, it does not mean that you only pay for the interest. It is called as such because it includes an option for the borrower to pay the interest only. The availability of this option is limited for a given period. A number of junior mortgage loans are truly interest only, but entails a balloon payment, which includes the original loan balance at maturity.

Combination Types of Mortgage Loans

ARMs. If you opt to obtain an adjustable-rate mortgage loan, expect the unexpected as interest rate rises and falls each month, quarter, or year, or could stay fixed for a span of time before it fluctuates. People who have this type of mortgage loan are advised to convert it into the fixed type once the interest rate dips.

Option ARM Mortgage Loans. This type of ARM loan can be quite complex. Besides the inevitability that the interest rate rises and falls, you have a wide array of payment alternatives and index rates, hence, complicating the process. When availing of this mortgage type, pay attention to the minimum payment option, which can lead to negative amortization.

Mortgage Buydowns. If you want to be paying for a lower interest rate, you can pay certain fees to do this. This is what a mortgage buydown is all about. The interest rate can be set lower provided you pay such fees. Lenders, buyers and sellers can do this to lower the interest for the borrower.

Piggyback Mortgage Loans. To veer away from paying private mortgage insurance when the down payment is less than 20 percent, you can opt for this combo mortgage. Two loans are involved in this type: a primary mortgage and a secondary mortgage. These mortgage loans can either be fixed-rate, ARM, or an amalgamation of the two.