Mortgage programs regularly change; however, the major types of mortgages generally remain the same. So, here is a review of the major types of mortgages all homebuyers and homeowners should understand to be informed consumers.
The most common type of mortgage in the U.S. is a fixed-rate mortgage. This type of mortgage features a stable, consistent interest rate that does not change during the life of the loan. These mortgages are often long-term loans commonly for 15 to 30 years with a monthly payment that does not change throughout the life of the loan.
Adjustable-Rate (Variable Rate) Mortgage
Adjustable-rate mortgages (ARMs), also called a variable rate mortgage, have a flexible mortgage loan interest rate that changes based on economic conditions and the specific conditions of the loan. Most ARMs begin with a low fixed rate before beginning to adjust after a set time.
Though most borrowers do not choose an adjustable-rate mortgage, they are useful in some buying situations. ARMs are typically more popular when interest rates are higher, such as 2005-2008 before the market crash. However, even in peak times for ARMs, they are not as popular as fixed-rate mortgages.
Mortgages backed by the U.S. government come in many different forms. The main types of government-insured mortgages include:
FHA: Loans insured by the Federal Housing Administration (FHA) are available to many homebuyers in the U.S. A large percentage go to first-time buyers, but anyone buying a primary residence may be able to qualify for an FHA loan if they meet the criteria.
USDA: For some residential properties in rural areas, borrowers can qualify for a loan from the United States Department of Agriculture, managed by the Rural Housing Services. These loans are only available to people who meet the criteria and are purchasing a home in a qualifying location.
VA: Military members and families may have access to loans insured by the U.S. Department of Veterans Affairs (VA). This type of loan allows eligible borrowers to purchase a home without a down payment.
A conventional mortgage is not insured by the government. The buyer is responsible for the entire loan repayment. Mortgage insurance can be purchased for a conventional mortgage by the buyer.
Interest-only home loans feature a set time period where the buyer only pays interest on the loan. With these loans, the initial monthly payments are a fraction of a traditional mortgage payment that includes both interest and principal. However, the buyer is not reducing the principal while only paying interest, and possibly not gaining any equity in the property.
After a set period, the buyer typically begins to also pay the principal of the loan, which increases the monthly payment.
A conforming mortgage conforms to the standards put in place by government organizations like Freddie Mac and Fannie Mae. Loans are conforming when they fall into the correct size limits and meet other loan criteria.
Loans that are larger than the standards set for a conforming loan are considered jumbo loans. These are higher risk mortgages that are traditionally only given to borrowers with high credit scores and large down payments. Borrowers may face higher interest rates because of the higher risk of the loan.
Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients with HARP refinancing to lower their monthly mortgage payments.