There are many types of mortgage loans available to prospective property owners. When one visits a mortgage loan lender, it is good to understand the many options he or she has before selecting which of the suits him or her. Here we shall divide them in broad categories for easier understanding.
Types of Government Mortgage Loans
A government loan is insured by a government agency. While the same is available to private sector, the private institutions get insurance on the loans by the government. They include:
VA Loans – These are loans made available to military personnel and their families. The loan facility normally pays 100% of the home value and thus needs no down payment. Details of the same are available in the department of Veteran affairs.
FHA Loans – This is a mortgage product available to private lenders but Federal Housing Administration insures it. If the borrower defaults, FHA compensates the lender.
RHA/USDA Loans – These Rural Housing Administration loans (RHA) are managed by United States Department of Agriculture (USDA). The loan is restricted to certain graphical areas of the country. It is also restricted to individuals that have low income in rural areas.
Types of Home Mortgage Loans by Repayment Rate
Fixed Rate Loans – This type of loan offers fixed interest for a specified time. During this period, the amortized principal is paid in full. Amortization is the payment of regular installments of principal and interest until full amount is paid.
Adjustable Rate Mortgages (ARMS) – The rate of interest fluctuates but with an indexed rate and some margin. There are predetermined adjustment intervals. There are also minimum and maximum rate caps.
Intermediate ARM – It is also known as hybrid ARM. It is fixed for a period but later adjusts on a predetermined schedule. When writing it, one shows the number of years the loan is fixed and the adjustable period. For example, 4/1 means four year fixed, one year adjustable annually.
Treasury ARM – The rate is fixed for a year but later fluctuates yearly. The new rate is derived from the loan margin and treasury average index.
Flexible Payment ARM – This facility gives the borrower several payment options. One can choose an assortment of payment options. However, there is a limit to how many times one can change his or her payment methods.
Interest Only ARM – The borrower pays interest only for a period while keeping down the principal amount.
Convertible ARM – This is an adjustable rate that can be converted to a fixed rate after a predetermined period.
Assumable Mortgage – This is an adjustable rate mortgage but the new homeowner can assume the balance of the same. Thus, the loan liability is transferred to the property buyer.
Balloon Conforming Mortgage – The rate of interest in this mortgage facility is fixed but the principal is not completely amortized. For the remainder of time, the rate is adjusted and fixed at a new percentage. The new rate is determined by the yield index and its margin.
Balloon Mortgage – In this case, the rate is fixed for some time. However, the principal is not completely amortized. The remaining principal amount is due as a balloon payment. Balloon payment is unusually high amount due at the end of a mortgage.
Split Loans – This facility allows borrowers to set a part of the loan as a variable rate loan and the other part as a fixed rate loan. It is mostly used by speculative buyers who expect rates to change.
Honeymoon Rate Loans – These are attractive interest rates offered by lenders at the beginning of a mortgage plan. After the introductory period the rates revert back to standard rates.
Home Equity Loan – The facility is structured in a way that borrowers access the equity that has been paid off. The payment one makes can be drawn back as long as one is able to pay the accrued interest.
Equity Release or Reverse Mortgage – The lender offers a loan on a fully paid home in exchange for an equity stake in the home. The amount loaned is recovered after the home is sold off. This is an attractive facility for those with a lot of assets and little cash.
Shared Equity – The lender of this facility offers a discount on the interest rate in a portion of the loan value in exchange for the appreciated capital value of the property being bought.
These are all the different types of mortgages that I can think of at the moment. If I’ve forgotten any of the types of mortgage loans, let me know in the comments.