Different Types of Real Estate Home Loans

There are several types of home loan mortgages that are available to prospective home buyers. Mortgage loans are broken down into two categories. One is governmental loans and the other is conventional loans. Governmental loans are insured by a government agency while conventional loans are not. The two most popular mortgage types chosen are fixed rate and adjustable rate.

    Fixed Rate

  1. A fixed rate mortgage is a conventional loan where the monthly mortgage payments and the interest rate remain fixed for the duration of the loan. This type of mortgage is available for 10 to 40 years. The most popular ones are the 15 and 30 year mortgages. With a 30 year fixed rate, the monthly mortgage payments will be lower than that of a shorter term loan. During the early years of the loan, a majority of the monthly payment will go towards paying the interest. A majority of the monthly payment will go towards the principle once the loan is paid down. This type of loan is geared more towards borrowers who plan to live in that particular home for several years.
  2. Adjustable Rate

  3. An adjustable rate mortgage (ARM) is one in which the interest rates and monthly mortgage payment will vary over the life of the loan. This is also a conventional loan. A majority of ARMs have a cap on the interest rates in order to protect homeowners from having huge monthly mortgage payments. At some point the interest rates will go down meaning that the mortgage payment will be lower. Many prospective homeowners choose this type of mortgage because of the low initial interest rates. This type of loan is mostly beneficial to borrowers who may be planning to move soon or to refinance. The most common types of ARMS are CD-indexed ARMs, Cost of funds-indexed ARMs, Initial fixed-period ARMs, and Treasury-indexed ARMs.
  4. Balloon

  5. A balloon mortgage is a short term loan (mostly 5, 7, or 10 years) that offers low interest rates. Only a small portion of what is borrowed is paid off during the life of the loan. Near the end of the loan term, the borrower will have to pay the remaining balance in a lump sum. They also have the choice to refinance the home. This mortgage loan may be ideal for homeowners who plan to sell or refinance the home within five to seven years.
  6. FHA, VA, and RHS

  7. FHA, VA, and RHS loans are loans that are insured by the government. The FHA loans are issued by the Federal Housing Administration and are open to all qualified borrowers. With this loan, only a small down payment is needed of normally three to five percent. These loans, however, do have a maximum loan amount.

    VA loans are given to qualified veterans by the Department of Veterans Affairs. These loans usually require no down payment. Eligible veterans must have obtained an eligibility certificate from the Department of Veterans Affairs. The maximum loan amount for a VA loan is $203,000.

    RHS loans are insured by the Rural Housing Service. They offer low interest rates and no down payment to borrowers who have low or moderate income and who reside in small towns or rural areas.
  8. Interest Only

  9. The interest-only loan gives homeowners the option of paying only the interest for their home loan or they can pay the interest plus something towards the principal. Interest-only payments are only allowed for the first five years of the loan. If the homeowner only pays the interest during the first five years of the loan, they will not see their principal balance being reduced until the sixth year of the loan when both the interest and principal payments are being made.
  10. Jumbo

  11. These loans are for borrowers who require a large loan amount. This is mostly used for homes that cost more than $415,000. Jumbo loans require a minimum down payment of at least five percent. The jumbo loans pose a higher risk for the lender because if the borrower defaults on the loan, the home may be harder to sell. Borrowers can get these loans as adjustable rate mortgages, 30 year fixed rate mortgages, or FHA loans.