Many types of mortgages are designed to serve the purpose of a wide range of borrowers' needs. Let us give you a quick overview of the various types of mortgages you can choose from as a home buyer. Each is having its own set of advantages and the kind of borrower it's apt for.
Conventional or Fixed-rate Mortgage:
The term conventional mortgages are generally used by lenders for loans that aren’t backed by the government. In simpler words, a conventional mortgage is a home loan that’s not guaranteed by the federal government. This is the best option for borrowers having strong credit and can afford a down payment of 3% or more of the loan amount.
The interest-only mortgage is the type of mortgage loan in which the borrower pays only the interest on the loan for a specified period of time, usually between five and seven years. Once that period is over without any default, the monthly payment amount increases and the borrower begins paying the principal.
Adjustable-Rate Mortgage (ARM):
The ARM loans are the opposite of fixed-rate mortgage loans. ARMs are 30-year loans where flexible interest rates are applicable that change depending on how market rates fluctuate. Borrowers first agree to pay according to the fixed interest for an introductory period, which is usually between 5 to 10 years. After that time span, your interest rate changes depending on market interest rates.
FHA Loans or Federal Housing Administration Loans:
FHA loans are such types of loans that are insured by the Federal Housing Administration.
VA Loans (approved by the US Department of Veteran Affairs):
VA loans are such types of loans that are insured by the Department of Veterans Affairs.