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Home Mortgage Types

If you are in the market for a home mortgage, knowing the various types of home loans being offered by lenders will help you decide what program is best for you. There are numerous kinds of home mortgages available and their main differences are usually found in the interest rate and the down payment requirement. Here, we tackle the more common and more popular types of home mortgages.

Fixed Rate Mortgage

This is the oldest type of mortgage and this involves the borrower choosing a term for the loan. The most common durations are 15 years and 30 years. Interest rate is fixed throughout the term and there is a monthly amortization schedule for principal and interest. Interest rates for this type of loan are usually lower than those that are sponsored by the government. The fixed rate mortgage is pretty straightforward when it comes to the features.

FHA Loans

Ideal for first time home owners, FHA loans require a lesser down payment since mortgage insurance is factored into the loan. The insurer in this case is the federal government.

Adjustable Rate Mortgage

Also known as ARMs, the interest rate for this loan type is not fixed throughout the term of the loan. Rather, the rate can go up or go down depending on the prevailing market conditions or on an index rate. Rate adjustments may be done once every two years, annually, semi-annually, or even monthly, depending on the arrangement. ARMs normally have lower interest fees at the start as compared to fixed rate mortgages.

VA Home Loans

A VA home loan is a government loan exclusively for veterans who have served in the US Armed Forces. The requirements for this loan depend on the number of years of service and whether the veteran was honorably or dishonorably discharged. The beauty of this loan is that no down payment is required. This loan is still funded by a mortgage lender but the loan is guaranteed by the Department of Veteran Affairs.

Mortgage Buydowns

This is best for borrowers looking to pay lower interest rates. This is done via the payment of fees to reduce the rate.

Piggyback Mortgage Loans

Also referred to as combination loans, this is made up of two loans. The first and second mortgages may either be both fixed rate, both adjustable rate, or a combination. The purpose of piggyback mortgage loans is to avoid paying premiums for private mortgage insurance by circumventing the minimum requirement on equity.

Reverse Mortgages

For individuals above 62 years old with enough equity, this could be an attractive offer. Instead of the borrower paying the lender monthly, the roles are reversed. As long as the borrower resides in the home being mortgaged, the borrower will receive monthly payments from the mortgage lender. Interest rates here may be variable or fixed.

Swing Loans

The purpose of this is to bridge financing gaps. This is applicable for instances when a seller has a property for sale but it has not yet been sold and he wishes to purchase another property. He can take out a bridge loan against his current house.

When looking to get a home mortgage, be sure to evaluate the different loan types available to you. Choose the one that will benefit you the most.



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