Learning The Different Kinds of Mortgage Loans

May 1, 2024

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When it comes to home financing, there are a lot of mortgage options out there to consider. It can be empowering to buy your own home and it can also be overwhelming to wade through all of the jargon.

Mortgages are complicated, yet you need to know many mortgage loans with their terms, conditions, and benefits. Knowing the differences between these mortgages can help you make a more informed decision about buying a house. Let’s take a look at the different types of mortgages available to you below.

Conventional Fixed-Rate Mortgage

This is the most common mortgage type, and it comes with a fixed interest rate and a fixed monthly repayment for the loan term. Depending on how long you have taken the mortgage, it usually lasts up to 30 years. It’s the most common because it provides predictability in the budget.

Adjustable Rate Mortgage (ARM)

An ARM is not the same as a conventional fixed-rate mortgage. Adjustable-rate mortgages offer a lower initial interest rate for a set period of up to 10 years, and after this time, the rate adjusts annually based on market conditions. This is great if you plan to move or refinance before that rate adjustment starts.

Federal Housing Administration Loans

The Federal Housing Administration insures an FHA loan and is popular for first-time home buyers. This is due to their lower down payment requirements, which can be as low as 3.5% of the home’s purchase price. These loans also have far less stringent credit score requirements, making getting on the property ladder easier.

VA Loans

Available to veterans and active-duty service members, VA loans often require no down payments and come with low, competitive interest rates. They are available for military personnel and certain surviving spouses.

USDA Loans

USDA loans, offered by the U.S. Department of Agriculture, are suitable for low—to moderate-income borrowers. They offer 100% financing and competitive interest rates.

Jumbo Loans

Ideal for purchasing high-value properties, jumbo loans exceed the conforming loan limits but typically require a much higher credit score and a larger down payment.

Interest-Only Loans

Borrowers usually pay only the interest for a specific period, up to 10 years. After that, loans convert to traditional payment structures, where the interest and principal both need to be repaid.

Balloon Mortgage

For those looking for lower interest rates and monthly payments for a shorter period, balloon mortgages are great. They last 5 to 7 years. At the end of the term, the remaining balance on the mortgage is due in full, so you can either refinance it or use a large lump-sum payment.

Reverse Mortgages

Available to prospective homeowners aged 62 and older, reverse mortgages allow them to convert a portion of their home equity into cash. The loan is repaid when the borrower moves out, or the owner passes away.

The variety of mortgages on offer in the U.S. is vast and offers options for those with different financial goals and situations. With the help of expert mortgage lenders, you can determine the right route for you.

 

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