What are the different types of mortgages?
Looking to purchase a property and trying to figure out what are the different types of mortgages? Let’s take a step back and understand what is a mortgage. A mortgage is simply a loan you take out to purchase a property. So, as long as you’re borrowing money/taking out a loan for a property, you will have a mortgage.
This post is about the different types of mortgages.
Let’s dive into the top 5 types of mortgages:
1. Fixed-Rate Mortgage
As the name suggests, the rate is fixed and remains constant throughout the entire life of the loan. Typical term lengths for fixed-rate mortgages range from 15 to 30 years. This is great for people who prefer consistency and predictability as the monthly payments will remain the same as well.
2. Adjustable-Rate Mortgage (ARM)
As the name suggests, the rate is adjustable. However, there is an initial period in which the rate is fixed before it starts adjusting based on market rates. Typical types are 5/1 ARM, which means the rate will be fixed for 5 years, then adjust annually after the 5 years.
3. FHA Loan
This means it’s insured by the Federal Housing Administration and is intended to make homeownership more accessible. FHA loans target first-time home buyers, people with lower credit scores, or those with limited savings for their down payment.
4. VA Loan
This loan is only eligible for veterans, members who are on active-duty service, and their spouses. This loan requires 0% down payment (or private mortgage insurance).
5. Conventional Loan
This is, by far, the most popular type of loan, but is not insured by the government. This loan is offered by banks, credit unions, and various mortgage companies. These loans require a down payment
To reiterate, the top 5 types of mortgages are:
- Fixed-Rate Mortgage
- Adjustable-Rate Mortgage
- FHA Loan
- VA Loan
- Conventional Loan
