Types of loans

There are many types of mortgage loans that are available on today’s market. This guide will cover the basics, teaching you the terminology and the key ways in which mortgage loans differ from one another.

First of all, mortgage loans can be conforming or jumbo. Most people use conforming loans; the maximum is set at over $300,000, which covers most people mortgage needs. Conforming loans are regulated by two organizations, Fannie Mae and Freddie Mac, which deal in the secondary mortgage market. Jumbo loans are designed for people who need mortgages that exceed that limit. However, they are not regulated by either Fannie Mae or Freddie Mac.

A distinction that will probably be more important for your purposes is the difference between fixed-rate and adjustable-rate mortgages. These long-term loans are the most common forms of mortgages. Fixed-rate loans lock in a certain interest rate, giving the borrower the stability of having payments that will not increase. Adjustable-rate loans, on the other hand, feature interest rates that change periodically. Every year or so, interest rates will rise or fall according to market conditions.

Some lenders offer both fixed- and adjustable-rate loans with low down payments. Government organizations like the FHA and the VA help eligible borrowers buy houses with extremely small down payments. Other lenders offer such programs, but charge interest rates that are considerably higher than those of the government-sponsored loans.

Finally, there are a number of more obscure loans that can benefit borrowers with certain needs. Balloon mortgages, which feature an initial term of five or seven years, are great for people who intend to move after a short while.