What Type of Home Loans Are There?

Posted by admin on Sep 3, 2019 5:11 AM

If you are planning on getting a mortgage, it is essential that you have at least a basic understanding of the different mortgage types. There are 8 different kinds of mortgage, 5 basic loans, and 3 combo loans. Once you understand the terms, you will be able to review the types of mortgage options available and make an informed decision. After you get the loan process out of the way you will be moving into your new home in no time!

Basic Loan Types

Conventional or Fixed Rate Mortgage

The most common loan, the conventional, or fixed-rate mortgage loan popular is because of the consistency it offers. The monthly payments stay the same over the life of the loan. This is a standard mortgage and they are available in 10, 15, 20, 30, and 40-year terms. The most common terms are 15 and 30.

Interest Only Mortgage

Interest Only Mortgages give you the option during the first 5 to 10 years to pay only the interest as your monthly payment. This is not a requirement. This slows down the repayment time but it can be useful if you find yourself in a pinch. Once that term is done, the rest of the mortgage is repaid just like a conventional mortgage.

Adjustable-Rate Mortgage (ARM)

There are many different ARMS. In each ARM the interest rate changes over time throughout the loan. The rate change is based on the economy and the cost of taking out a loan. A common ARM is called the 5/1 loan. The interest rates stay the same for the first 5 years but may change for the remaining 25 years.

Special Assistance Loans

FHA Loans

These loans are granted by the Federal Housing Administration. They come with mortgage insurance to protect you in case you are not able to repay the loan. One of the main benefits of this type of loan is that they require smaller down payments.

VA Loans

These types of loans are specifically made for veterans for the U.S. armed forces and their spouses. They do not require a down payment and are guaranteed by the Department of Veteran Affairs.

Exotic Loan Types

Combo and Piggyback Loans

The combo happens when you put a down payment of less than 20% and take two loans of any type in combo to avoid paying the insurance on a private mortgage.

Balloon Mortgage

In a balloon mortgage, you only pay interest for a period of time and then the total principal amount is due after that time. Usually, you pay interest for 5 years before paying the rest of the loan.

Jumbo Mortgage

Jumbo mortgages are too big for the Federal Government to guarantee. As of right now, the limit is about $700,000. Therefore, the borrower would not get the lowest interest rates available on a smaller loan.

With so many types of home loans available, choosing the one that’s right for you may seem overwhelming. It is a good idea to read up more on the different types of loans and speak with the Oregon Loan Lady to get the best advice for your individual situation.

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