When speaking with a lender or realtor about a mortgage, you may become confused about the various types of mortgage loans available. You may not even understand what some of the lingo or names mean. Continue reading below to learn more about the eight most common types of mortgage loans.
1. Fixed Rate Mortgage
A fixed rate mortgage loan is also called a conventional loan. These loans will remain consistent throughout the life of your loan, the payments will never change. This is due to the interest rate on your loan never changing. Most often, home owners get fixed rate loans for either fifteen or thirty year terms, meaning the house will be paid off within the term chosen.
2. Interest-Only Mortgage
Interest-only mortgages allow home owners the ability to pay off all of the interest on their mortgages within the first few years of the loan. This is not a requirement, though if you do choose this method, your loan will last much longer. When the period of interest payments is over, you will pay down your mortgage just like a fixed rate loan.
3. Adjustable Rate Mortgage
A home loan that utilizes an adjustable rate mortgage will have an interest rate that changes over time. These loans are slightly risky as they are dependent upon the economy. Sometimes the change in interest could be in your favor, while other times it could make your monthly payments go up.
4. FHA Loans
FHA loans are provided by the Federal Housing Administration which stands for FHA. FHA loans require a very small or no down payment. Mortgage insurance is required with an FHA loan just in case the loan never is paid back in full. These loans work great for first time home buyers or for those with a lower income, as well as for seniors age 62+ under the federally insured reverse mortgage.
5. VA Loans
VA loans are given by the Department of Veteran Affairs. They are only available to veterans or their spouses. VA loans do not need a down payment (except for reverse mortgages for VA’s). Every application is also approved to make the home buying process much simpler for veterans. This prevents veteran homelessness, so long as he or she can afford their monthly payments on the mortgage.
6. Piggyback Loans
Piggyback loans are also called combo loans and are a more rare type of mortgage. Down payments are small on these loans but they do not require mortgage insurance. The home owners are able to work with their lenders and realtors to choose two types of mortgages in combination to pay off their homes.
7. Balloon Loans
Balloon loans are for individuals who expect to have a large cash sum within a certain amount of time. Home owners only have a loan that goes toward their interest, which can be paid off in just a few years based upon the term that is determined. When this interest is paid off, the home owner will pay off the entire amount of the loan.
8. Jumbo Loans
The U.S. government cannot guarantee mortgages that are too large. Often these are close to million dollar homes. The homeowner would still be able to obtain a mortgage, but he or she would not be able to have the same interest rates guaranteed by the government. The interest rates on these loans would probably be significantly higher.
SCCU mortgage loans have options for many of the types of mortgages listed above. Contact us today to discuss the best lending option for your upcoming mortgage. We will be there to help you in the lending process every step of the way.