Full Article
Mortgages come in various types, each catering to different financial situations and needs. Most people are eligible for more than one type. Here are the main types of mortgages:
• Fixed-Rate Mortgage
This type of mortgage has a constant interest rate and monthly payment for the life of the loan, typically 15, 20, or 30 years. It offers predictability and stability in payments.
• Adjustable-Rate Mortgage (ARM)
ARMs have an interest rate that changes periodically based on market conditions. They often start with a lower initial rate than fixed-rate mortgages but can increase or decrease over time.
• Interest-Only Mortgage
With this mortgage, you pay only the interest for a set period, typically 5-10 years, after which you start paying both principal and interest. This can result in lower initial payments but higher payments later.
• FHA Loan
Insured by the Federal Housing Administration, FHA loans are designed for low-to-moderate-income borrowers who may have lower credit scores. They require a lower down payment, typically 3.5%.
• VA Loan
Guaranteed by the Department of Veterans Affairs, VA loans are available to eligible veterans, active-duty service members, and certain members of the National Guard and Reserves. They often require no down payment or private mortgage insurance (PMI).
• USDA Loan
Backed by the U.S. Department of Agriculture, USDA loans are for rural and suburban homebuyers who meet income requirements. They offer low-interest rates and require no down payment.
• Jumbo Loan
Jumbo loans exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA). They are used to finance luxury properties or homes in high-cost areas and typically have stricter credit requirements.
• Balloon Mortgage
This mortgage involves lower initial payments with a large lump sum (balloon payment) due at the end of the loan term. It can be risky if you're unable to refinance or sell the property before the balloon payment is due.
• Reverse Mortgage
Available to homeowners aged 62 and older, reverse mortgages allow you to convert part of your home equity into cash. The loan is repaid when the homeowner sells the home, moves out permanently, or passes away.
Be honest with yourself
Be honest about the risks, benefits and what you can realistically manage for each type of mortgage. Understand that each type has specific eligibility criteria, costs, and potential pitfalls that need careful consideration.
Different types of mortgages include fixed-rate, adjustable-rate, interest-only, FHA, VA, USDA, jumbo, balloon, and reverse mortgages. Each type caters to different financial situations and goals, offering varying interest rates, repayment terms, and eligibility requirements. Understanding these options helps you choose the right mortgage for your needs.
More Information
back to top