When you hear people talking about getting a mortgage for a new home, it seems simple right? A mortgage is a mortgage and the hardest part is getting approved for a low rate. But that is not entirely true. There are actually several different types of mortgages.
This one should be obvious. You pay the same interest rate over the entire term, which can range from 15, 20 or 30 years. While this might seem like a nice deal, take into account that if interest rates fall, you will still be stuck with the higher rate.
Adjustable-rate (ARM) or variable-rate mortgage
An ARM is just a broad subheading for all of the adjustable-rate mortgages that are out there. Although it may differ depending on the year, they are all fairly similar. After a period of a fixed rate, the interest rate changes based on a schedule.
FHA (Federal Housing Administration) Loan
These loans are insured by the government, particularly the Department of Housing & Urban Development. They do not guarantee or make loans, however the insurance lowers the risk of default for the lenders. It allows individuals to qualify for a loan even if their FICO score is poor.
Unlike the FHA, the VA loan is a government loan offered to veterans who have served in the U.S. Armed Services. It may also be acquired by spouses of deceased veterans in specific cases.
A balloon mortgage is very similar to a fixed-rate mortgage, however the payments are lower due to a large balloon payment made right at the end of the loan term.
The title is slightly misleading. These loans allow for an option to make an interest-only payment for only a short amount of time.
Individuals must be 62 years old or older with enough equity to receive this loan. Essentially, rather than making monthly payments to the lender, the lender makes monthly payments to the borrower as long as they live within their home.
Combo/Piggyback Mortgage Loan Types
When the down payment is less than 20 percent, the borrow takes out two loans: They may be either fixed-rate, adjustable-rate or the combination of the two. This helps to avoid paying private mortgage insurance.