Mortgage Types

Use our mortgage types tables to learn more about different mortgages, their advantages and disadvantages as well as common uses.

Descriptions & uses

  • Mortgage Type

  • Description

  • Used for

  • 30-year fixed-rate

  • Long-term mortgage designed to be paid off in 30 years at a set interest rate

  • Home purchase, mortgage refinance, cash-out refinance, home equity loan, jumbo mortgage, FHA, VA, USDA

  • 15-20 year fixed-rate

  • Medium-term mortgages designed to be paid off in 15-20 years at a set rate

  • Home purchase, mortgage refinance, cash-out refinance, home equity loan, jumbo mortgage, FHA, VA.

  • ARM

  • Mortgage with interest rate that varies over time, based on market conditions

  • Home purchase, mortgage refinance, home equity loans, HELOCs, interest-only loans, jumbo mortgages.

  • Interest-only

  • Interest payments only for a fixed period of time before principle must be paid off

  • Home construction loans, HELOCs, jumbo loans, ARMs, balloon payments

  • Piggyback Loan

  • A second mortgage, or lien, used to cover part of the purchase price of a home.

  • Partial or entire down payment in order to avoid paying for mortgage insurance; funding jumbo portion of high-end home purchase so that the rest can be covered with a lower-rate conforming loan. Fixed-rate, ARMs, jumbo loans.

  • Home Equity Loan

  • Loan secured by the equity in the borrower's home; that is, the home serves as collateral for the loan. A type of second mortgage, or lien.

  • Borrowing money for any purpose desired by the homeowner, often home improvements or other major expenses. Fixed-rate, ARM, interest-only, balloon payment options.

  • HELOC

  • A type of home equity loan in which you have a pre-set limit you can borrow against as needed. Usually divided into a draw period, during which you can borrow money, followed by a repayment period.

  • Borrowing money at irregular intervals for any purpose desired. Draw period is usually an interest-only ARM; repayment usually a fixed-rate loan.

  • Reverse Mortgage

  • A category of home equity loans for persons age 62 and above.

  • Monthly stipends to supplement retirement income; monthly cash advances for a limited time; HELOC to draw as needed.

  • Refinance

  • Taking out a new mortgage to pay off and replace an existing mortgage

  • Obtaining more desirable loan terms than current mortgage offers, such as lower interest rate, lower monthly payments, shorter or longer payoff terms, replace adjustable-rate loan with fixed-rate loan or vice versa, among others. Options include fixed-rat

  • Cash-out Refinance

  • A single transaction to both refinance your current mortgage and borrow against your available home equity.

  • Borrowing money for any purpose desired by the homeowner, in addition to any of the other potential uses of refinancing. Fixed-rate or ARM.

  • HARP Refinance

  • Government-backed program to help homeowners with low- and negative-equity (underwater) mortgages refinance to more favorable terms. Stands for Home Affordable Refinance Program.

  • Refinancing primary mortgages. 30-year, 20-year and 15-year fixed-rate options.

  • FHA Loan

  • Government program designed to facilitate home ownership.

  • Home purchase, refinancing, cash-out refinance, home improvement loans. 30-year, 15-year fixed-rate, ARMs, HELOCS

  • VA Loan

  • Home loan program for members and veterans of the armed forces and certain others.

  • Home purchase, mortgage refinancing, home improvement loans, cash-out refinance. 30- and 15-year fixed-rate, ARM.

  • USDA Rural Development Loan

  • Program to assist low- to moderate-income persons purchase a modest home in rural areas and small communities.

  • Home purchases, refinancing. 30-year fixed-rate mortgage only

Advantages and Disadvantages

  • Mortgage Type

  • Description

  • Used for

  • 30-year fixed-rate

  • Low monthly payments, rate doesn't change, payments stable, attractive rates, most common mortgage type.

  • Long-term commitment, higher rates than shorter-term loans, equity builds slowly; higher long-term interest cost than shorter-term loans.

  • 15-20 year fixed-rate

  • Lower rates than 30-year mortgage, rate doesn’t change, stable payments, shorter payoff, build equity quickly, less interest paid over time.

  • Higher monthly payments than a 30-year loan, lower interest payments could affect ability to itemize deductions on tax returns.

  • ARM

  • Low initial rates; greater payment flexibility than short-term fixed-rate loans.

  • Unpredictable; rate may adjust higher; monthly payments may increase substantially; refinancing may be needed to prevent large payment increases when rates are rising.

  • Interest-only

  • Deferred payments on principle; flexibility to make additional payments if desired.

  • Higher rates than on fully amortizing loans; higher payments during amortization period than on loans where principle payments begin immediately.

  • Piggyback Loan

  • Higher interest rate on piggyback loan may be cheaper than paying for private mortgage insurance (PMI). Paying conforming rate on portion of jumbo mortgage reduces interest payments.

  • Second lien can make refinancing more difficult. Separate bill to pay each month. Shorter amortization on piggyback loans can make monthly payments higher than they would be for a single primary mortgage.

  • Home Equity Loan

  • Allows you to borrow money at a lower interest rate than other, nonsecured types of loans. Interest usually tax-deductable

  • Could lose home through foreclosure if you fail to make payments. Rates are higher than on a primary lien mortgage (such as a cash-out refinance). Reduced equity can make refinancing more difficult. Can delay the time you own your home free and clear.

  • HELOC

  • Borrow what you need, when you need it; little or no closing costs; lower initial rates than standard home equity loans; interest usually tax-deductable.

  • May be tempted to borrow more than you need; variable interest rate could mean higher payments than you expect; could lose home through foreclosure if you fail to make payments.

  • Reverse Mortgage

  • No need to repay funds borrowed for as long as you reside in the home; loan liability cannot exceed equity in home; borrowers choosing lifetime stipend option continue to receive payments even if equity is exhausted; payments are tax-free.

  • Costs are significantly higher than for other types of home equity loans; draining equity may leave borrower without financial reserves; extended stay in medical care facility could cause loan to come due and borrower to lose home.

  • Refinance

  • May be able to get lower interest rate, lower monthly payments, pay off loan faster, switch from adjustable-rate loan to fixed-rate or vice versa.

  • Must pay closing costs for new mortgage, which may offset the advantages of a lower interest rate.

  • Cash-out Refinance

  • Lower interest rate than a standard home equity loan; borrower does not carry second lien with a separate monthly bill; may be able to reduce rate on entire mortgage; other potential advantages of a standard refinance.

  • Higher closing costs than on a home equity loan; borrowing against home equity may increase likelihood of foreclosure in a financial crisis.

  • HARP Refinance

  • Enables homeowners to refinance when they would otherwise find it difficult or impossible to do so due to a lack of home equity.

  • Interest rates obtained through HARP refinancing will be higher than those available to borrowers with more home equity. Limited to mortgages backed by Fannie Mae or Freddie Mac. No cash-out refinance. Cannot be used to refinance second liens.

  • FHA Loan

  • Down payments as little as 3.5 percent of home value, competitive mortgage rates, easy refinancing for borrowers who currently have FHA loans, less stringent credit restrictions than on conventional mortgages.

  • Loan limits restrict amount that can be borrowed; higher costs for mortgage insurance than on standard loans; borrowers putting up less than 10 percent down required to carry mortgage insurance for life of the loan.

  • VA Loan

  • 100 percent financing available (0 down payment); competitive mortgage rates even with no down payment; easy refinancing (streamline).

  • May not be used to buy a second home if you have exhausted your benefit on your primary home. Cannot be used to purchase property used solely for investment purposes.

  • USDA Rural Development Loan

  • Up to 100 percent financing (no down payment), competitive rates, inexpensive mortgage insurance, broad definition of "rural" includes many suburban areas.

  • Relatively low loan limits; cannot be used for purchases in urban areas; waiting periods can be long; must be able to show present housing is inadequate; not offered by most lenders.

Best and less suited for

  • Mortgage Type

  • Description

  • Used for

  • 30-year fixed-rate

  • Homebuyers looking for affordable, stable payments; refinancers looking to minimize monthly payments; buyers/owners expecting to remain in the property a long time.

  • Borrowers refinancing a 30-year loan they've paid down over a number of years; those expecting to move within a few years; those with variable incomes who need a more flexible payment schedule.

  • 15-20 year fixed-rate

  • Buyers refinancing after paying down the balance on their original mortgage; those seeking to pay off their mortgage relatively quickly.

  • Home purchase mortgage, unless the home is very affordable by your standards; borrowers who need more flexible payment schedules.

  • ARM

  • Borrowers seeking to minimize their short-term rate and/or payments; homeowners who plan to move in 3-10 years; high-value borrowers who do not want to tie up their money in home equity.

  • Borrowers who are uncomfortable with unpredictability; those who would be financially pressed by higher mortgage payments; borrowers with little home equity as a cushion for refinancing.

  • Interest-only

  • HELOCs, construction loans that will be eventually be refinanced into a conventional mortgage; home purchases by well-off borrowers seeking payment flexibility; short-term loans.

  • Long-term mortgages, financially inexperienced borrowers.

  • Piggyback Loan

  • Buyers purchasing high-end properties; borrowers putting up less than 20 percent down who wish to avoid paying for mortgage insurance.

  • Homebuyers able to make 20 percent down payment; those who anticipate rising home values will enable them to cancel PMI in a few years.

  • Home Equity Loan

  • Borrowers who need to borrow a lump sum cash for a specific purpose.

  • Borrowers who need to borrow varying sums over a period of time. Those paying an above-market rate on their primary mortgage may be better served by a cash-out refinance.

  • HELOC

  • Borrowers who need need to make periodic expenditures over time and/or are unsure of the total amount they'll need to borrow.

  • Borrowers who need to borrow a single lump sum; those who are not disciplined in their spending habits.

  • Reverse Mortgage

  • Retirees who need additional monthly income to be able to continue to live independently; retirees who need to borrow occasional sums but lack the means to repay them.

  • Retirees who are counting on using their home equity to help fund transition to assisted living; those who wish to keep their home in the family or preserve their inheritance for their heirs.

  • Refinance

  • Borrowers currently paying above-market interest rates; borrowers who wish to shorten their loan term; borrowers who want to replace an ARM with a more predictable fixed-rate; borrowers facing a balloon payment.

  • Borrowers with a mortgage rate only slightly higher than current market rates; borrowers who do not plan to stay in the home long enough to recoup the cost of refinancing.

  • Cash-out Refinance

  • Homeowners seeking a home equity loan who would also benefit from refinancing their current mortgage.

  • Homeowners seeking a home equity loan who would gain little or no savings from refinancing their current mortgage.

  • HARP Refinance

  • Underwater borrowers or those with less than 20 percent home equity; those seeking to refinance at a lower interest rate; borrowers with an ARM or upcoming balloon payment who wish to convert to a fixed-rate loan.

  • Borrowers with non-Fannie Mae or Freddie Mac mortgages; those with at least 20 percent home equity; those seeking an ARM or cash-out refinance.

  • FHA Loan

  • First-time homebuyers, buyers who cannot put up a large down payment, borrowers purchasing a low- to mid-priced home, buyers seeking to buy and improve a home with a single mortgage (203k program).

  • Borrowers purchasing a high-end home; those able to put up a down payment of 10 percent or more.

  • VA Loan

  • Members and veterans of the armed forces, their surviving spouses, and persons attached to certain defense-related institutions.

  • Non-veterans; veterans and active duty members who have exhausted their basic entitlement or who are looking to purchase investment property.

  • USDA Rural Development Loan

  • First-time buyers with young families; those presently living in crowded or outdated housing; residents of rural areas or small communities; those with limited incomes

  • Urban dwellers, households with above-median incomes; single persons or couples without children.