5 Types Of Mortgages
Updated: Jan 22
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With interest rates near historic lows, now is the perfect time to apply for a home mortgage.
Consumers can choose a loan that’s most appropriate for their financial circumstances. Here is an overview of today’s most common mortgages.
Conventional Loans — Also Called Fixed Rate Mortgages
The most common mortgages are fixed rate mortgages, where rates are stable for the life of the loan. This takes out all the guesswork, as borrowers will know their monthly payment throughout the life of the loan and nothing will change it. The most popular fixed–rate mortgages are 30 and 15–year terms. If you can afford a fixed–rate and plan to live in your home for 10 or more years, this may be the best option.
Home loans insured by the Federal Housing Administration (FHA) are generally designed for first–time home-buyers and others who face modest hurdles in securing a mortgage. FHA mortgages generally feature lower down payments, flexible requirements, and consistent rates throughout the entire term.
Type of Mortgage Pros and Cons
1. Fixed-Rate Mortgage
Pro: This is it – There are no surprises The interest rate stays the same over the entire term, usually 15, 20 or 30 years.
Con: If interest rates fall, depending on your credit, equity and property values, it could be difficult to refinance at a lower rate.
2. Adjustable-rate (ARM) or variable-rate mortgage
Pro: Usually offers a lower initial rate of interest than fixed-rate loans.
Con: After an initial period, rates change over the life of the loan. When the interest rates increase, your loan payments will increase also.
3. FHA (Federal Housing Administration) loan
Pro: Allows buyers who are unable to secure a conventional type loan, may not qualify for a home loan with a Low down payment.
Con: The size of your loan may be limited and the buyer will be responsible for a monthly mortgage insurance payment that’s included in the loan.
4. VA loan
Pro: Guaranteed loans for eligible veterans, active duty personnel and surviving spouses Offers competitive rates, low or no down payments.
Con: The size of your loan may be limited.
5. Reverse mortgage
Pro: This loan allows seniors to convert equity in their homes to cash; you don't have to pay back the loan and interest as long as you live in the house.
Con: Caution – should always verify leaders. False advertising promises, particularly by lenders that prey on seniors. Check to make sure the loan is Federally insured.