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Types of Mortgage Loans

Five Of The Most Common Types Of Mortgage Loans

Choosing the right type among all types of mortgage loans is an important step towards owning your own home. If you do not have the funds to make a single payment that covers the entire purchase amount. Borrowing funds from a lender means that you commit to repaying the funds, interest included, in a given amount of time. It is essential that you find a mortgage that matches your budget and needs as you will likely be repaying the loan over a long period of time.

Here’s a short list.

Government Insured 

The U.S Department of Veteran Affairs, USDA (U.S Department of Agriculture) and the FHA (Federal Housing Association) have the authority to back mortgage loans. However, it is worth noting that the US government itself is not a lender. Borrowers who would find it difficult to access other types of mortgage loans due to low income, less than perfect credit as well as members of the military can access government insured mortgage loans through these government agencies.

To qualify for a loan from any of these government agencies borrowers must meet the requirements set by each agency.


Mortgage loans that are not insured by the government are categorized as conventional mortgage loans. Conforming and non-conforming mortgage loans are types of conventional loans. The term conforming is used when the loan amount falls within the limits set by the two government sponsored agencies, Freddie Mac and Fannie Mae, that back most mortgage loans in the country.

Conventional loans are a perfect fit for borrowers with stable income, good credit and the ability to make a 3 percent down payment on the home they wish to purchase. To avoid paying Private Mortgage Insurance on conventional loans, borrowers must make a down payment of at least 20 percent.


While non-conforming mortgage loans are classified under conventional loans, they are quite unique. Unlike conforming loans, non conforming loans are not bound by the limits set by Freddie Mac and Fannie Mae. Jumbo loans are a great example of non-conforming mortgage loans.

These types of loans are best suited to buyers who are looking to finance the purchase of a home whose price exceeds the set federal limits.

Fixed Rate 

Available in 30, 20 and 15 year repayment terms, fixed-rate mortgage loans are great for home buyers looking to make the same mortgage payment over the entire life of the loan. This is because the interest on fixed rate loans stays the same. However, over the long term, a fixed rate loan attracts more interest.

This type of loan is suitable for those who plan on livening in the same house for a longer period, ten or more years and want stable payments.

Adjustable Rate

These loans have interest rates that move up or down with changing market conditions. In most cases, these loans have a fixed interest rate for the first few years, which resets to a fluctuating one for the remainder of the repayment period. To avoid ending up with higher than expected monthly payments further down the line, borrowers are encouraged to choose products that place a cap on the interest rate increases.

If you plan on living in your house for just a few years an adjustable rate loan can save you some money in terms of reduced interest payments. In general, these loans are suitable to borrowers that are comfortable with the level of risk involved.

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