One of the more complicated aspects of buying a home is understanding the different mortgages available and deciding which is right for you. Knowing the basic facts about the most common types of mortgages will help you make the right decision when the time comes.
By far the most popular type of mortgage, the 30-Year, Fixed-Rate loan has an interest rate that never changes. Predictable payments help with budgeting, and disciplined borrowers may be able to apply more toward the principal each month to pay off the loan early.
A 15-Year, Fixed-Rate loan is similar to a 30-year mortgage, except the term is much shorter, and the interest rate may be lower. While payments will be higher with this type of loan, the ability to pay off a mortgage in 15 years makes this an appealing option.
Interest rates on Adjustable-Rate loans will fluctuate at some point in the future. Payments are set for a fixed period of time and will increase or decrease periodically during the adjustable phase. Market variations can make adjustable-rate mortgages riskier than other loans.
Insured by the Federal Housing Administration, FHA loans have flexible qualifying standards. FHA loans make it easier for those with lower credit scores or small down payments to obtain loans. Typically, mortgage insurance premiums are required.
VA loans are backed by the Department of Veterans Affairs and offer low-interest mortgages to U.S. military active duty members and veterans. Down payments and mortgage insurance are not required, but an affordable funding fee is charged to most buyers.