The Most Common Mortgage Types and What Buyers Need To Know About Them

by Barb Perruccio & Britt Glassburn 01/26/2020

If buying a home is something you’re considering, you might be curious about the different types of mortgages that are available to you. After all, the interest rate on your loan could have a huge impact on your finances over time, saving you thousands of dollars.

In today’s post, I’m going to demystify the home loan by explaining the most common types of mortgages. That way, you’ll be able to approach a lender with a bit of context and knowledge to help make the best mortgage decision for you and your family.

Fixed-rate mortgages

The most common types of home loans in the United States today are fixed-rate mortgages. A fixed-rate mortgage has the benefit of stability in terms of its interest rate--year after year, or the lifetime of your loan, you know exactly what percent of interest you’re going to pay.

Fixed-rate mortgages most frequently come with repayment terms of 15 or 30 years. However, some lenders offer different repayment periods.

As with any debt, paying off a mortgage in a shorter term typically amounts to paying less interest over the lifespan of the loan. For this reason, buyers who can afford higher monthly mortgage payments often opt for a 15-year fixed-rate mortgage.

If you can’t afford higher monthly payments, a 30-year loan will typically have lower mortgage payments, but at the expense of paying more interest over the life of the loan.

The 30-year option is the most often in the United States, where first-time buyers typically have too many other monthly bills to afford a high mortgage payment.

Adjustable-rate mortgages

Adjustable-rate mortgages (ARMs) were once an ideal option for first-time buyers who could purchase a home at a very low interest rate and then refinancing once that rate was set to rise. However, after the housing crisis of 2007, trust in the housing market drastically declined.

In recent years, ARMs have begun to make a comeback. However, they currently still only account for around 5% of home loans.

Adjustable-rate mortgages come with one important advantage and one huge disadvantage over fixed-rate mortgages. The upside is the ability to borrow money for a home at a lower interest rate than other mortgage types. The down side? Your interest rate isn’t locked in for the length of the loan, meaning your rate could, in theory, rise dramatically before you sell or pay off the home. This is exactly what happened to borrowers during the subprime mortgage crisis.

Guaranteed loans

There are a number of special loan programs that have been sponsored by the government over the years. Among them are USDA rural development loans, VA loans for veterans and their spouses, and FHA loans offered by the Federal Housing Authority.

All of these loans make it easier to buy a home with little or no down payment or a credit score that’s less than perfect. That makes these options great for first-time homeowners.

About the Author
Author

Barb Perruccio & Britt Glassburn

BARB PERRUCCIO / MANAGING BROKER

I have been a Wash Park resident and investor for 20 years and a dedicated real estate professional for the past 14 years. I have a degree from Arizona State University from the College of Engineering and Applied Sciences, Graphic Communications in Printing Technologies. I worked in Sales in the Advertising and Marketing industry in Manhattan for 12 years, San Francisco for 2 years and chose to settle in Denver to raise a family. I now have 3 beautiful children and enjoy living and working in Wash Park!

As a Realtor in Colorado, I have leveraged my sales and Sr. Management skills to ensure each and every transaction runs smoothly. As a Certified Negotiation Expert (TM) in real estate and with over 33 years of sales and marketing experience, I am a strong negotiator and will negotiate diligently on your behalf.

Whether you are planning to buy, sell, build or invest in real estate, I have the knowledge to guide you through the process smoothly and take great care in providing the best and most professional service!  My goal is to build strong relationships in our community one person at a time.

BRITT GLASSBURN / BROKER ASSOCIATE

I have lived in the Denver Metro Area on and off since 1977 and have been investing in the Denver Home Market since 1993. This included doing fix and flips and owning rental properties. I have a degree from the University of Colorado in International Affairs. I have worked extensively in the Sales, Account and Project Management industry and enjoy helping people through the real estate transaction process. In 2014 I decided to obtain my real estate license and work as a full time broker associate. I am a Certified Luxury Home Marketing Specialist and Certified Residential Specialist. My goal is to assist you throughout the home selling and buying process as I have the necessary knowledge to provide you with the necessary information when purchasing a home! We are here to make the transaction as smooth as possible!