Home Mortgage Loan Types
Home loan types include fixed rate, adjustable rate, interest only, FHA,
VA, reverse mortgages, USDA mortgages and more. Mortgage rates for any home
mortgage loan can differ widely.
Fixed Rate Home Mortgage Loans
With a fixed rate mortgage, you know exactly what your principal and interest
payment will be each month for the life of your loan. It won’t change because
your interest rate doesn’t change. Your taxes and insurance component of your
payment towards escrow can change (and probably will) if your taxes and
insurance change. Unfortunately, there’s no way to lock those in. If interest
rates go up, you’re protected with a fixed rate mortgage. But, you won’t benefit
if rates go down. You can always take advantage of falling rates by refinancing.
Fixed rate mortgages might be right for you if:
Want the security of a fixed principal and interest payment.
Think that interest rates will go up.
Are on a fixed or limited budget.
VA Home Mortgage Loans
VA home loans are guaranteed by the US Department of Veteran Affairs. These
mortgage loans are offered specifically to eligible veterans for home purchases,
rate and term home loan refinances or cash-out mortgage loan refinances. VA loans
offer many advantages to qualified veterans.
Jumbo Mortgages or nonconforming loans exceed the loan limits set by the two
publicly chartered corporations (Fannie Mae and Freddie Mac) that buy mortgage
loans from lenders. The 2009 single family loan limit is $417,000. If you need
to borrow more than that amount, you need a jumbo mortgage. These jumbo
mortgages typically have a higher interest rate than conforming mortgages.
Reverse Home Mortgage Loans
Reverse mortgage loans are available to individuals aged 62 or older. These home
loans actually pay the borrower. With reverse home mortgage loans, borrowers can
receive a lump sum, monthly payments or hold the sum in a savings account as a
credit line. Unlike traditional home equity loans, a borrower does not qualify
on the basis of income but on the value of his or her home. In addition, the
loan does not have to be repaid until the borrower no longer occupies the
property. If you are a senior looking to cash out the equity in your home, a
reverse home mortgage loan could be a great option.
Home Equity Line of Credit
A mortgage loan, usually in a subordinate position, that allows the borrower to
obtain multiple advances of the loan proceeds at his or her own discretion, up
to an amount that represents a specified percentage of the borrower's equity in
Debt Consolidation Home Mortgage Loans
If you have debt outside of your home loan, you are likely paying a much higher
interest rate than you should be. Credit card interest rates can be as high as
25%. Refinancing your home mortgage loan to pay off and consolidate debt under
one low mortgage rate is a smart maneuver. Refinancing your home loan could save
you a great deal of cash every month.
Cash Out Home Mortgage Loans
You can obtain a refinance home mortgage loan to get cash out for a variety of
purposes, including education expenses, vacations, other investments, home
improvements and more.
Adjustable Rate Home Mortgage Loans
Compared to fixed rate mortgages, Adjustable Rate Mortgages (ARMs) offer a lower
interest rate to start, so your monthly payments are generally lower. But, the
interest rate moves up and down with the market based on an "index". Some of the
more common indices include U. S. Treasury Bills, Cost of Funds Index (COFI) and
the London Interbank Offered Rate (LIBOR). Most ARMs have an initial fixed rate
period where the interest rate doesn’t change followed by the rest of the loan’s
lifetime period where the rate is adjusted at predetermined intervals. Many ARMs
have caps that limit how much your interest rate can change per period as well
as for the life of the loan.
Also be aware that there are some very low rates ARMs that start out with
"discounted" rates. These discounted rates are below the market rate and will
definitely go up at the first adjustment period.
Adjustable rate mortgages might be right for you if:
You want more property than you can qualify for now with a fixed rate.
You are confident your income will increase or rates will not go up much.
You plan on selling or refinancing within seven years of buying your home.
Interest Only Home Mortgage Loans
With interest only home loans, you only pay interest during the initial interest
only period. This type of home mortgage loan allows you to lower your initial
mortgage rate, lower your initial monthly payment, qualify for a larger loan
amount and free up cash for other uses.
Construction loans are used to finance the building of a new home rather than
purchase an existing home. They are usually variable-rate loans that have
interest only payments during the construction phase. Draws are scheduled based
on the stages of construction to pay the builders.
Many construction loans are construction-to-permanent which means that when
construction is complete, the loan is converted to a normal mortgage. This has
the advantage of a single loan with one closing.
USDA Home Mortgage Loans
USDA home loans are offered in rural areas as determined by the United States
Department of Agriculture (USDA). The USDA’s mission is to help lower income
households obtain home loans at reasonable mortgage loan rates. USDA home loans
offer many advantages to qualified borrowers.
Divorce Buyout Home Mortgage Loans
Many home mortgage loans are tailored for people with special circumstances. The
Divorce Buyout Mortgage allows one spouse to keep the house, possibly get cash
out if needed, and remove the other spouse’s name from the current home loan,
thus eliminating any undue financial liability for the home loan.