Mortgage Loan Types

Most people believe that finding a mortgage for a loan is a simple, straightforward process, however, there is more to it than that. There are basically two types of loans, government or conventional loans. Government loans are usually backed by some government funded program such as the VA or the FHA.

On the other hand, conventional loans can be conforming or non-conforming. Conforming conventional loans follow the guidelines that are set by the Federal National Mortgage Administration and the Federal Home Loan Mortgage Corporation. These loans can either be fixed or variable in the rates that are offered. The rate will vary from lender to lender. Non-conforming loans do not have any strict guidelines that they adhere to.

The fixed rate mortgage maintains the same interest rate throughout the period of the home loan. Other items, such as the property tax and insurance that may be built into the mortgage can fluctuate throughout the term of the mortgage. The most popular type of fixed mortgages is a thirty year term loan. However, fifteen, forty and fifty year terms are also available.

Short-term mortgages are adjustable meaning that the rate that the person has really depends on the average rate offered in real time. They will fluctuate during the loan term, sometimes they may adjust once a year, once a month or every three to five years. Some of these types of mortgage offer a set cap for which the rate cannot go above, which is nice to have.

Another variation of the adjustable rate mortgage is the interest only adjustable mortgage. For the beginning three to ten years of the loan, consumers are given the option of just paying the interest only, which helps them incredibly financially. After this time period, the rate will adjust to the traditional rate that is based on what the average is in today's time.

Those borrowers who have a much lower FICO score will qualify for loans that have higher rates because they are considered higher risk. Other lenders may require that after a set period of time that people pay a balloon payment in order to pay off the entire mortgage.

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