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Types of mortgages

Years ago, there were only three types of mortgage programs available to home buyers: fixed-rate conventional mortgages, VA loans, and FHA loans. Nowadays, there’s a wider range of mortgage loan types buyers can choose from.

Buying a home is most likely one of the largest purchases you’ll make during your lifetime – this means choosing the ideal type of mortgage loan will be a key factor in the home buying process. And because there are so many options available, it can be difficult to choose the right type of mortgage that meets your financial goals.

To help you get started on your search, here’s some quick info on the mortgage loan types that are currently available:

  • Fixed-rate mortgage types – Home buyers can choose from different fixed-rate mortgages, from 5-year to sometimes even 50-year fixed-rate mortgages. All of these are completely amortized.
  • FHA loans – An FHA mortgage loan is insured by the government under mortgage insurance funded into the loan. This is the most common type used by first-time home buyers due to their minimal down payment requirements.
  • VA loans – This type of program is available to US veterans, current US military members, reservists, and select surviving spouses. Requirements of the loan vary according to number of years in service or type of military discharge given. VA loans are funded by conventional lenders, but are guaranteed by the Department of Veterans Affairs.
  • Interest-only mortgages – This mortgage loan type can be a bit misleading, as they are not really “interest-only.” They do however, contain an option to make an interest-only payment, which is available for a certain period of time.
  • Option ARM loan – This type of program is an adjustable-rate mortgage which allows buyers to choose from a selection of index rates and payment options. Those choosing this loan should be careful of the minimum payment option, as this can result to negative amortization.
  • Combo mortgage loan – Combo loans, also known as “piggyback” loans consist of two loans, a first and second mortgage. These mortgages can either be fixed-rate, adjustable rate, or a combination of both.
  • Adjustable-rate mortgages – These loans come in many different forms, and can move up or down or remain fixed for a certain period before adjusting.
  • Mortgage buydowns – This type of mortgage has a reduced interest rate due to fees paid to lower the rate, hence the name. Lenders, sellers, or buyers are able to buy down the buyer’s interest rate.
  • Bridge or swing loans – This type of mortgage loan is typically used whenever the seller has a home for sale on the market, which has not sold yet. The seller then borrows equity to purchase another home, with his or her existing home used as security for the loan.
  • Reverse mortgage – This type is available to persons who have enough equity, and are aged 62 and above. Rather than making monthly payments to a lender, monthly payments are instead paid to the borrower, as long as he or she resides in the home. Interest rates for a reverse mortgage can be fixed or adjustable.
  • Equity mortgage loan – This type of loan allows buyers to receive cash, and can be fixed, adjustable, or a line of credit used in order to withdraw funds as needed by the borrower.
  • Streamlined-K mortgage loan – Similar to the 203K loan program, this FHA backed program provides funds to borrowers to repair a home by collecting funds into a single loan. Although the financial limits for the repair work are lower on this type of loan, it is easier to obtain and requires less paperwork compared to a 203K.