What kind of mortgage loans are there?
Most mortgage loans fall into two categories. Whether you need a first mortgage, second mortgage, or just need to refinance, loans are typically available as either a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Both have benefits.
Fixed Interest Rate:
- Interest rate stays the same for the life of the loan.
- Monthly payments are uniform—never any surprises.
- Protection from rising interest rates.
Adjustable Interest Rate:
- Interest rates go up or down depending on market conditions.
- Initial rate is fixed for the first one to 10 years or so and may be lower than a fixed-rate mortgage. After the introductory period, the rate adjusts once or twice per year but cannot exceed the predetermined cap.
- Often offers lower initial rate, which can allow a larger loan to be borrowed than a fixed-rate mortgage.
However, both types also have drawbacks. Based on the market, a fixed-rate mortgage could mean that you’re locked into a higher interest rate than ARM-mortgage holders. But if the market tips the other way and interest rates skyrocket, your fixed rate could help you save money on that first mortgage, 2nd mortgage, or refinanced mortgage.
Not all loans are created equal. If the loan amount exceeds the conforming loan limit set by Fannie Mae and Freddie Mac, it is considered a “jumbo loan” and requires higher rates. Other loans are backed by government agencies like the Federal Housing Administration and Veterans Administration to help low and moderate income homebuyers, war veterans, and active-duty military personnel purchase homes.
There are a number of other mortgage loan types available for everything from first loans to renovations to a loan refinance; mortgage rates and terms are only some of the broadest conditions that dictate these different types. Check with your lender or financial planner to determine which mortgage loan is right for you.