There are a few mortgage loans available, and they can be tailored to suit a variety of borrower needs. Below are the advantages and disadvantages of each type of mortgage. This page ends with a glossary that describes different types of mortgage loans.
30-year fixed rate mortgage
A 30-year fixed rate mortgage is a home loan that has an interest rate set for the whole term of 30 years.
- The most popular home loan. See the pros & cons of the 30-year fixed rate mortgage.
- The interest rate of your fixed-rate mortgage is set at the same level as it was when you bought it.
- A shorter-term loan will result in a lower monthly payment.
Ideal for: Homebuyers who are looking to lower their monthly payments by spreading out their repayments over a longer period of time. Fixed rates make the monthly payment predictable.
Fixed loans of 30 years offer flexibility in repaying the loan quicker by increasing monthly payments.
Fixed-rate 15-year mortgage
The interest rate on a 15-year fixed-rate mortgage is the same throughout its 15-year term.
- Refinances are often used. See the pros & cons of the 15 year fixed-rate mortgage.
- The interest rate is fixed for the term of the loan.
- Higher interest rates than loans with a longer term.
- Lower monthly payments than 30-year loans with lower total interest.
Ideal for: Home buyers and refinancers who are looking to increase their equity and pay off loans faster. Because the interest rate is fixed, payments are predictable.
The total interest payments are lower because the borrower pays less interest over a shorter period of time.
Variable-rate Mortgage
A variable-rate mortgage is a home loan that has an initial rate but which adjusts periodically.
A 5/1 ARM, for example, has an interest rate that is fixed for five years and then adjusts every year. See the pros & cons of adjustable rate mortgages .
- The initial “teaser rate”, which is lower than most loans, gives you lower monthly payments.
- Many times, initial rates can be locked for one to five, seven, or ten years.
Ideal for: Homebuyers who aren’t planning on keeping a mortgage for a long period of time or who think interest rates will drop in the future.
FHA Mortgage
FHA mortgages are home loans that are insured by the Federal Housing Administration . They are designed to assist borrowers with less income buy homes.
Learn how FHA loans are different from traditional mortgages.
- Allows for down payments as low at 3.5%
- You can apply even if your credit score is 500. Find out more about how credit scores are required to purchase a house.
- You will need to pay mortgage insurance premiums.
For: Borrowers with lower credit scores, a smaller down payment and less than 20%.
VA Mortgage
VA loans are mortgages that are backed by the Department of Veterans Affairs. They are available to veterans and military personnel. Learn more about VA loans and who is eligible.
- There is no down payment.
- Required upfront VA funding fee This year’s VA funding fees chart.
- There is no mortgage insurance.
For military-qualified borrowers who are looking for a low rate of interest and no minimum down payment.
USDA Mortgage
USDA home loans are mortgages that are backed by or issued by U.S. Department of Agriculture. Learn more about USDA loans, and the eligibility requirements.
- Most properties require no down payment.
- There are grants and loans for home improvements.
- There are income limits and property values caps.
Ideal for: Rural and suburban buyers who are income-qualified and want to make a small or no down payment.
Jumbo Mortgage
Jumbo home loan is a mortgage above a specific dollar amount. The county-specific limits for Jumbo loans are subject to change and are updated periodically. This year’s loan limit.
- Fixed or adjustable rates are possible
- Credit scores of 700 or more are often required.
- A down payment of 10% is usually required.
Ideal for: Owners who are looking to refinance large-sized mortgages and buyers of high-end homes.
Mortgages with interest only
A interest-only mortgage is a mortgage that requires only payments on the interest charge. During the interest-only period, the principal or loan balance is not reduced.
- This is for those borrowers who can afford to make regular principal payments.
- This is useful for home buyers who don’t plan to stay in their house for the long-term.
- Lenders will require that borrowers show substantial assets and a demonstrated ability to repay.
This loan is best for: Borrowers who have a high monthly cash flow, an increasing income, large cash savings, or a fluctuating income. For those who are eligible for large annual bonuses, they may be able to use the principal balance to pay it down.