Types of Mortgages
Understanding the Types of Mortgages
When searching for a type of mortgage, it's important to choose the best loan program that fits your personal wants and needs. The right type of mortgage for you depends on many different factors, such as:
- Your current financial picture.
- How you expect your finances to change.
- How long you intend to keep your house.
- How comfortable you're with the amount of your mortgage payment changing.
The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences with a real estate or mortgage professional.
Here are some common types of mortgages that you should know about:
Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate may vary and is adjusted periodically based on a pre-selected index. Sometimes known as a variable rate mortgage. These types of loans can be cheaper initially, but can be unpredictable.
Balloon (payment) Mortgage: Usually a short term fixed-rate loan that involves small payments for a certain period of time, and one large payment for the remaining amount of the principal at a time specified in the contract.
Blanket Mortgage: One mortgage securing several pieces of real estate.
Conventional loan: A mortgage not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA). This mortgage is not a sub-prime loan.
FHA Loan: a loan insured by the Federal Housing Administration (FHA), open to all qualified home purchasers. This program allows buyers who might not otherwise qualify for a home loan to obtain one because the risk is removed from the lender by FHA. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country.
Fixed-Rated Mortgage: A mortgage on which the interest rate is set for the term of the loan, regardless of future interest rate fluctuations. This makes payments precisely predictable, but it’s not always the cheapest alternative.
Sub-prime Lender/Loans: A lender that charges a finance rate that is higher than the “prime” or normal rate offered by conventional lenders. Typically, it's a lender that approves loans for individuals who may have poor credit history or no credit history, or who have other characteristics that justify a higher rate. Keep in mind: because you're approved for a sub-prime loan doesn’t mean that you cannot qualify for a conventional loan from another lender. Be sure to explore your options.
