When you think of a mortgage, you probably think of the traditional mortgage with a large down payment, or maybe the FHA mortgage with 3.5% down for a home. There are actually multiple mortgage products available to homebuyers, although some have restrictions for qualifying. Understanding the different types of mortgages lets you figure out how to buy a home even if you don’t have what it takes to get a conventional mortgage. Here’s a look at some of the different types of mortgages.

  • Fixed-rate mortgage, also known as a conventional mortgage. This is the most common or popular mortgage product. It’s a 30-year loan with a fixed interest rate, but it’s possible to get a conventional mortgage with 20-year and 15-year terms.
  • Government-backed mortgage, also known as an FHA loan. This type of loan is aimed at borrowers who would most likely be turned down for a conventional mortgage, but are capable of making loan payments.
  • Adjustable-rate mortgage or ARM. There are multiple types of mortgages that fall under this term, but they all share a common denominator in the variable interest rate aspect. If interest rates rise or lower via a third party index rate, so will the interest rate on the mortgage.
  • Interest-only mortgage. A borrower only pays the interest on the principal for a set period of time and gets a lower payment as a result. However, once the interest-only period expires, the mortgage payment jumps higher because the principal has come due. Once the principal payments are triggered, the monthly mortgage payment can be higher than it would be with a conventional mortgage.
  • Balloon mortgage. This type of mortgage is similar to an interest-only with one exception: the remaining balance of the mortgage is due at the end of the mortgage term.
  • Combination mortgage. A combination mortgage consists of taking out a down payment loan and a conventional mortgage. This is typically done to avoid the costs of private mortgage insurance (PMI). The idea of taking out two loans to buy a home may seem counterintuitive, but PMI can be expensive. Getting a down payment loan can cost less than PMI over the long run.

Source: Home Buying Institute

If you or anyone you know has questions about home loan rates or products, please reach out. We are ready to help you find the best possible mortgage solution for your situation. Contact Sheila Siegel at Synergy Financial Group today.