What Are the Different Types of Mortgage Loans?

There are many different types of mortgages available to homebuyers.Ÿ

  • Fixed-Rate vs. Adjustable-Rate. Two key types of mortgage loans are fixed rate mortgages and adjustable rate mortgages. Certain mortgages may fall into a hybrid category, which combines features of both. A fixed-rate mortgage sets an interest rate that will not change for the duration of the mortgage period. In an adjustable-rate mortgage loan, the interest rate is fixed for a period of time and then subject to increase or decrease based on the market and other factors. The potential interest rate change will typically be capped.

  • Government-Insured vs. Conventional Loans. Government-insured mortgages are backed by government agencies. Unlike conventional loans, government-insured mortgages generally require a lower down payment, credit score, and annual income. These loans may be larger and provide lower interest rates. In contrast, a conventional loan is not guaranteed by the government and is therefore riskier to the lender. Generally, it's easier to obtain conventional loans; government-insured loans are more competitive and have a greater number of applicants.

  • Jumbo vs. Conforming Loan. Conforming loans have a cap on the amount loaned, so you cannot take out a mortgage larger than that cap. These loans conform to Freddie Mac or Fannie Mae guidelines. They typically have lower interest rates than jumbo loans, which have a much higher cap (and therefore are used to purchase more expensive luxury properties). Jumbo loans will also be more difficult to qualify for and obtain, requiring a better credit history and larger down payment than conforming loans.

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When considering different types of mortgage loans, you should obtain as much information as possible and compare the loans of each type based on their terms and other information you find. You can conduct your own research, consult with other borrowers, and work with brokers and lenders to gather as much information as possible about the mortgages available.