Types of Mortgages

There are a wide range of mortgages available that can serve any number of purposes, from providing long-range security to homeowners to allowing investors to turn over properties quickly and providing opportunities for those with low incomes. Special mortgages are available for veterans, first-time homebuyers and seniors over the age of 62. Utilize a mortgage broker familiar with all the options to find the best plan for your needs.

Fixed-rate

Fixed-rate mortgages are the most common and most secure type of home loan. The borrower agrees to an interest rate that remains stable over the life of the loan. A fixed-rate can be amortized over 10 years to 50 years. Most people use a 30-year fixed-rate mortgage. Borrowers pay equal payments each month, though most of the payments for the first couple years are applied to the interest owed.

Adjustable

Adjustable rate mortgage loans (ARMs) can be factored in a number of ways. Many ARMs start out with a low interest rate and increase for a set number of years until they reach a maximum agreed-upon rate. Other ARMs change with the market and payments can fluctuate from year to year or month to month. An ARM also can have a balloon payment tacked onto it. The balance of the loan must be paid off when the adjustments are complete over a set period of time, or a new mortgage must be negotiated.

FHA

Loans approved the Federal Housing Administration (FHA) are insured by the government. FHA loans are attractive to first-time homebuyers because they require very little down payment and in some cases they can be bought with no down payment. The cost of the government protection is included in the house payment and is usually discontinued after five years of successful repayment.

VA

Mortgages for veterans and their families vary in terms depending on the length of service and the type of discharge the veteran received. Veterans Administration (VA) loans are written through conventional banks and mortgage lenders and are insured by the Veterans Administration. There is no down payment required for a VA loan, but the interest rate often is higher than a conventional fixed or adjustable rate mortgage for which the borrower may be qualified.

Variations

Specialty mortgages include reverse mortgages, which are sold to people over 62 who need immediate income. A bank owns the house, but instead of the homeowners paying a monthly mortgage, the bank pays a mortgage to the seniors until they move out. Equity mortgage loans are additional loans made to homeowners using the equity in the home as collateral. Interest on equity loans is tax deductible. Bridge loans are made to homeowners when they bought a new house but haven't sold their other home yet. It is a short-term loan that also relies on the equity of the first home to cover the debt.

Resources

• Home Buying Institute