3 Types of Mortgage Loans

You may have found the perfect house for yourself or your family and are ready to sign papers to purchase it immediately. While buying a home is exciting and one of the most memorable purchases we make in our lives, it is important to pump the brakes and take a look into what mortgage may be best suited for this purchase. When deciding on a mortgage, multiple variables come into play and it will mainly depend on the personal characteristics of the loan that you deem as the most advantageous to your situation. There are various types of loans available to home-buyers, but among the most prominent include conventional loans, fixed-rate mortgages, and adjustable-rate mortgages (ARMs). 

Conventional loans are best for borrowers with a new credit score and come in two packages – conforming and non-conforming. Conforming loans are established by standards put in place by the Federal Housing Finance Agency (FHFA), in which these standards include variables pertaining to your credit, debt, and size of the loan. Non-conforming loans do not meet FHFA standards and may be more suitable for larger homes or lenders with below-average credit. Fixed-rate mortgages are best for borrowers that are seeking to maintain the same payment month over month. Fixed-rate mortgages will usually include terms of 15 or 30 years and will cost slightly higher than other loans, considering that you will pay more in interest on a longer-term loan. While interest rates may be higher, fixed-rate mortgages provide a steady payment plan that will not fluctuate over time. 

The last loan type that is most commonly considered is an adjustable-rate mortgage (ARM), in which interest rates will increase within a specified timeframe. Adjustable Rate Mortgages (ARM) are enticing to those that aren’t planning on staying in their house for very long, considering that the interest rates will remain low for a few years. Having said that, it is important to read the terms thoroughly as after some time your interest rate will adjust upward incrementally and significantly increase your monthly payments. Before jumping into any loan, it is a must to account for all variables that you deem as important and what your long-term financial plans/goals are.