What are the different types of mortgage loans available?

When buying a home or refinancing one you already own, securing a lower interest rate is just one of many factors to consider. Really, it’s picking the right type of mortgage loan that’s crucial.

Homebuyers, in particular, will hear terms like “fixed rates,” “adjustable rates,” “jumbo loans” and others. It’s important to be able to decipher each loan type before making any major decisions

Getting to know different mortgage types and comparing mortgage and refinance rates from multiple lenders can help you find the home loan that best fits your needs and budget. Click here to learn more about each loan type and how to secure a lower interest rate today.

Here are 8 types of loans you should know to help determine which is best for you:

  1. 30-year fixed-rate
  2. 15- or 20-year fixed-rate
  3. Adjustable-rate mortgage (ARM)
  4. FHA loan
  5. USDA loan
  6. VA loan
  7. Interest-only loan
  8. Jumbo mortgage
  1. 30-year fixed-rate
    These home loans have mortgage rates that remain the same for the entire 30-year term.

30-year fixed-rate mortgage advantages:

Can be used for a home purchase, mortgage refinance, cash-out refinance, or home equity loan
Monthly payments are stable and you can accelerate your loan payoff by making additional principal payments
Interest rates won’t change, making it easier to calculate total interest paid
30-year fixed-rate mortgage disadvantages:

Mortgage rates may be higher compared to shorter-term home loans
Building equity can take time
Best for: Homebuyers and refinance borrowers who want predictable monthly payments. Using a mortgage calculator can help to estimate your payment.

If you already have a 30-year fixed-rate mortgage, you may want to consider refinancing to a shorter term. To see how much you could save on your monthly payments and life of the loan, crunch the numbers and compare loan rates and mortgage lenders using this free tool.

WHAT’S THE LOWEST RATE EVER FOR A 30-YEAR FIXED MORTGAGE?

  1. 15- or 20-year fixed-rate
    A 15- or 20-year fixed-rate mortgage allows a shorter window for repaying your mortgage.

15- or 20-year fixed-rate mortgage advantages:

A popular option for refinance loans
May offer lower interest rates compared to 30-year fixed-rate mortgages
It’s possible to build equity faster with a shorter loan term
You can be mortgage debt-free in less time
15- or 20-year fixed-rate mortgage disadvantages:

A shorter loan term can result in a higher monthly payment
Higher payments could shrink how much home you can afford when buying
Best for: Homebuyers and refinance borrowers who are comfortable with supporting a higher monthly mortgage payment and want to pay off their home loan faster.

If you’ve decided that refinancing your home loan is right for you, visit Credible to find personalized rates and lenders all in one place.

HOW TO FIND THE BEST MORTGAGE RATES AND FASTEST CLOSINGS

  1. Adjustable-rate mortgage (ARM)
    Adjustable-rate mortgages or ARM loans have a low fixed rate for an initial period. Once that period ends, the rate adjusts based on an underlying index rate.

Adjustable-rate mortgage advantages:

Monthly payments can be lower than other mortgage types initially owing to lower mortgage rates
Depending on the loan terms, you can take advantage of a low initial rate for 5, 7, or 10 years
Adjustable-rate mortgage disadvantages:

You could be stuck with a much higher rate once your loan adjusts
Higher mortgage rates can translate to higher monthly payments
Best for: Homebuyers who don’t plan to stay in the home long-term or will refinance to a fixed-rate mortgage before their ARM adjusts.

If you’d like to learn more about the different types of home loans available now, visit Credible.

HOW YOU COULD BENEFIT FROM ADJUSTABLE-RATE MORTGAGES

  1. Federal Housing Administration (FHA) loan
    FHA loans are backed by the Federal Housing Administration. These government-backed loans can be used to buy a home or to refinance an existing FHA loan.

FHA loan advantages:

Buy a home with as little as 3.5% down, versus the 10% or 20% down payment that may be expected with a conventional home loan
Minimum credit score requirements are also lower for FHA loans versus other mortgage options
Designed to make homeownership easier to attain for first-time buyers
FHA loan disadvantages:

Homes must meet minimum health and safety standards
FHA loans have lower loan limits than other mortgage types
Mortgage insurance premiums are required
Best for: First-time buyers with less than perfect credit who are in the low-to-moderate-income range and want to buy a home with a smaller down payment.

If you’re a first-time homebuyer, make sure you check Credible to view all of your loan options before making a commitment. After all, Credible can help you determine the life of the loan you’ll need and what kind of mortgage rates are currently available.

MORTGAGE RATES NEAR RECORD LOW — WHY IT’S A GOOD TIME TO REFINANCE

  1. USDA loan
    USDA loans are another type of government-backed loan. The Department of Agriculture offers these home loans to eligible buyers living in qualifying rural areas.

USDA loan advantages:

It’s possible to get up to 100% financing with no down payment required
Mortgage rates for USDA loans are competitive
No prepayment penalties apply and the seller can pay some of your closing costs
USDA loan disadvantages:

Homes have to be located in an eligible rural or suburban area
Your income can’t exceed certain limits to qualify for a USDA loan
USDA loans also cap the number of assets you can have to qualify
Best for: Low-income borrowers who live in rural areas and want to buy a home with low or zero down payment requirements.

THE BASICS OF NO-CLOSING COST MORTGAGE REFINANCING

  1. VA loan
    VA loans are designed for military members and veterans. These government loans are backed by the U.S. Department of Veterans Affairs.

VA loan advantages:
No down payment is required for a VA loan
Private mortgage insurance isn’t required
The Department of Veterans Affairs doesn’t set a minimum credit score requirement for VA loans
VA loan disadvantages:
Lenders can still impose minimum credit score guidelines
An upfront VA loan funding fee is required
Similar to FHA loans, homes have to meet certain health and safety requirements
Best for: Military members, veterans and their families who want to purchase or refinance a home at competitive rates with no down payment requirement.

GETTING A SECOND MORTGAGE? HERE’S WHAT YOU NEED TO KNOW

  1. Interest-only loan
    Interest-only loans only require you to make payments toward the interest on the loan for an initial period. Principal payments are required later.

Interest-only loan advantages:
You can defer making payments on the loan principal
Available for home purchase loans and home equity loans
Interest-only loan disadvantages:
Interest rates may be higher compared to conventional mortgages
You may have to make a large balloon payment once the interest-only repayment period ends
Best for: Borrowers who are taking out home equity loans or home purchase loans that they can afford to pay off quickly or plan to refinance later.

Don’t want to wait to refinance? View your mortgage refinance options today via Credible.

HOW REFINANCING YOUR MORTGAGE CAN PUT MONEY BACK IN YOUR POCKET

  1. Jumbo mortgage
    Jumbo mortgages are home loans that have limits above the conforming loan limits as set by Fannie Mae and Freddie Mac. These limits can vary and are adjusted regularly to account for inflation.

Jumbo mortgage advantages:
They can make it easier to buy a more expensive home without having to get a piggyback mortgage
You can get a fixed-rate or adjustable-rate jumbo loan
Mortgage rates can be competitive and sometimes lower than conventional loans
Jumbo mortgage disadvantages:
Lenders may expect good to excellent credit to qualify
You may need a larger down payment or more cash reserves to be approved
Best for: People who need a mortgage for a more expensive home. Buyers who have good credit and are able to support a larger down payment and a higher monthly payment.

When comparing mortgage types, it helps to get advice from a qualified mortgage professional. Connect with Credible today to review mortgage rates from different lenders and speak to a loan expert.