Common types of mortage loans

Fixed-Rate Mortgage Loans

Your interest rate stays the same throughout the entire life of your loan. This is an ideal loan if you plan to stay in your house for a long time.


Fixed-rate mortgages are available in a variety of repayment terms.

(a) 30-Year Fixed-Rate: You pay back the loan 360 months. The monthly payment is lower than 15 year mortgage. This is also the easiest fixed-rate to qualify for.

(b) 15-Year Fixed-Rate: It offers a lower interest than 30 year mortgage. But expect your monthly payment to be higher than the 30 year loan. But you will pay back the loan in 180 months.

Some banks may offer other variations of the fixed rate – 10 years-fixed or 20 years-fixed.
Basically, this is the differences between the variations -- fewer the years to pay back the loan, higher the monthly payment but lower the interest rate.

Read more about Fixed-rate mortgages: | 1 | 2 |

Adjustable-Rate Mortgage (ARM) Loans

Interest rate increases or decreases periodically as the market rates change. The advantage of ARM is that it usually offers a lower initial interest rate than the fixed-rate options. Also you may more easily qualify for larger loans due to this initially lower rate.

The downside is that the rate may increase and end up being higher than the fixed-rate loans.

ARM loan may be perfect for you if you plan to move in the next few years and therefore aren't concerned with an increase in rate. Or if you need a lower initial rate to afford to buy the home you want.

Read more about ARM mortgages: | 1 | 2 | 3 |

Balloon Loans

Balloon loans offer a lower interest rate for a short term financing period. However, at the end of the term you will be required to either pay off the outstanding balance in one lump sum or you can refinance the loan. Most people who chose to get a balloon loan plan to sell or refinance their home within a few years.

Government Loans - A number of agencies offer government-insured loans.

1. Federal Housing Administration (FHA) Loans

An FHA loan allows you to put down a very low down payment on your home. This is available to first-time home buyers but there is maximum loan limit.

2. Veterans Affairs (VA) Loans

VA loan allows qualified military veterans to buy a house under with no down payment.

3. Rural Housing Services (RHS)

The RHS offers low interest rate loans with no down payment to people with low to moderate income households who live in rural areas or small towns.

4. State and Local Loan Programs

Many states and local housing agencies offer special programs for first-time home buyers. These programs typically offer mortgages with low down payments or lowered interest rates. Some agencies even offer assistance with down payments and closing cost.