Types of Mortgages

When shopping among the various mortgage types, your focus may be on one particular aspect of a very complicated procedure. Some buyers focus on the monthly payment for their mortgage to the exclusion of all else, while others may be primarily concerned about the interest rate that they will be offered for their loan. The best approach to choose is a well rounded concern for all of the possible features of your mortgage, including your monthly payment, how long your mortgage is for, the interest, whether your loan has a fixed rate, prepayment penalties and other factors as well. To assist with deciding from the various loan products and offers out there, here is a description of some of the most common types of mortgage loans and what their features are.

Adjustable Rate Mortgage: The Adjustable Rate Mortgage, or ARM, is a type of mortgage that has a variable interest rate which can begin to "float" or fluctuate after an initial introductory period. This type of loan is best for the buyer who is either looking for a short-term investment or who does not have a substantial income for a mortgage initially but has every expectation of that income increasing substantially within the next few years. The biggest advantage to an adjustable rate mortgage is that they usually start off with very low interest rates.
Fixed Rate Mortgage: The Fixed Rate Mortgage is a mortgage where the interest rate for the loan is set from start to finish. Unlike the ARM, there is no need to worry about the possibility that rising interest rates will increase your mortgage price and make your home difficult to afford over time. These mortgages will start with a more median interest rate offer than the adjustable rate mortgage.
80/20 Mortgages: The 80/20 Mortgage is a split mortgage that is handled by two different mortgage companies - one financing 80% of your total loan required for the home purchase while the other finances the remaining 20%. The percentages financed are not fixed; for example, one lender may finance 75% of your mortgage while a second finances the other 25%. The purpose of the 80/20 loan is to allow multiple lenders to share the risk across themselves for any one mortgage. Rather than one lender financing 100% of a mortgage and risking losing everything, they may be more willing, under certain circumstances, to risk 80% instead. This mortgage option gives those with less than perfect credit the option of getting into a home where they might not otherwise be approved for a loan.
FHA/VA Mortgages: Both FHA and VA mortgages are government-backed, which means that the federal government provides a surety to the lender that if the borrower defaults on the loan, they will receive most or all of their principal back. These loans are offered to specific people in specific circumstances, for example, the FHA loan is usually only offered to first-time home buyers. The VA loans are offered to active-duty, separated and retired service men and women. The advantage to these two types of loans is that they usually require a much smaller down payment than the ARM or conventional mortgage loan - as low as 3.5% down will be satisfactory to most lenders that offer these types of mortgages. Mortgage counseling suggests that though lenders will allow a smaller down payment, you come up with as large a down payment as you possibly can.