What are the different types of mortgage loans?
There are many different types of mortgage loans. Though many people simply think of a mortgage as the loan used to buy a home, in reality a mortgage is any type of loan that is secured by home equity.
Mortgages come in many different types and can be structured many different ways. A 30-year fixed-rate loan is the most popular type of mortgage for buying a home. A 15-year loan is often used to refinance a mortgage the borrower has been paying down for a number of years. A 5-1 or 7-1 adjustable-rate mortgage (ARM) may be a good choice for someone who expects to move again in a few years.
Choosing the right type of mortgage for you depends on the type of borrower you are and what you're looking to do. An FHA loan, with its low down payment and softer credit requirements, can be an attractive type of mortgage for first-time homebuyers or those with flawed credit. Borrowers with strong credit, on the other hand, may get a better deal with a conventional mortgage backed by Fannie Mae or Freddie Mac.
A home equity loan is a type of mortgage used to borrow cash by using your home equity as collateral. But a home equity line of credit (HELOC) may offer greater flexibility. And a cash-out refinance may be the right choice if you need to borrow a large sum or can reduce your mortgage rate in the process.
So what type of mortgage loan is the best one for you and your purposes? To help you sort through your options, the following tables provide a breakdown of the different types of mortgage loans, their descriptions, how they're used, their pros and cons and the types of borrowers they may or may not be suited for. Note that a single type of mortgage loan may have multiple features or be useful for several different purposes.