Different types of Home Loans Available
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When it comes to picking the right loan type, none are better than another. It depends on your own goals. Read on to understand the many options available and which may be better for you.
Not all loans are created equal. Some are better if you plan on staying in the same home for many years, while others are better if you plan on relocating in the near future. If you're thinking of buying a new home or refinancing an existing one it's important you understand what options are available so you can make an informed decision.
Fixed Rate
A mortgage loan with a fixed rate of interest over the life of your loan. In other words, your monthly payment will not change during the life of your loan. Great for those who want to keep a home for a long time and have the peace of mind that mortgage payments will remain predictable. Fixed rate mortgages are available at 30, 20, 15 and 10 years, with the most popular being the 30 year option.
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Adjustable Rate
Also known as an ARM, adjustable rate mortgages have a fixed payment for a set period of time and then will adjust, normally to an index such as LIBOR or T-BILL. Every lender offers different initial fixed periods with the most popular being 5, 7, and 10 years before adjusting.
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Interest Only Loan
You pay only the interest on the loan for a fixed term. Afterwards you could pay off the loan, refinance, or pay the principal and interest like a traditional fixed rate mortgage.
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FHA Loan
Insured by the Federal Housing Administration (FHA) and typically allows for a lower down payment and credit score. FHA loans can be fixed rate or adjustable rate depending on what your needs are. FHA loans are ideal for first-time home buyers.
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VA Loan
Insured by the Department of Veterans Affairs and is reserved for members of the military, veterans or the current surviving spouse of one.
- Your down payment will be reduced, or you won't have one at all.
- There is no private mortgage insurance.
- There is no pre-payment penalty.
Reverse Mortgage
These loans are available to individuals over 62 years of age. Instead of paying the lender, the lender pays you each month so long as you reside in the home. Interest rate can either be fixed or adjustable.