Types of Mortgage Loans

Fixed Rate and Adjustable-Rate Mortgages

Fixed Rate Mortgage

Pros of a Fixed Rate Mortgage:

- It locks in the interest rate
- Rising interest rates and higher inflation won’t impact the rate
- Available under a variety of terms

Cons of a Fixed Rate Mortgage

- Qualifying can be difficult
- When interest rates drop existing rate is locked in at the higher rate
- May be less flexible than a variable rate loan

Adjustable Rate Mortgage (ARM Loan)

Pros of an ARM Loan:

- Low introductory rates and greater flexibility
- Payments can decrease if interest-rates fall
-Could potentially save thousands of dollars over a fixed-rate mortgage

Cons of an ARM Loan:

- Greater complexity
- Potential for much bigger payments over time
- Possible inability to sell or refinance when you want to

Government Backed Mortgages 

FHA Loan

Pros of FHA Loans:

- Low down payment with low credit scores
- Higher debt-to-income ratio (DTI) is allowed
- Less expensive monthly mortgage insurance for low credit scores

Cons of FHA Loans:

- Higher total mortgage insurance costs
- Limited to a primary residence only
- Lifetime mortgage insurance expense

VA Loan

Pros of VA Loans:

- No down payment
- No private mortgage insurance (PMI)
- Higher allowable debt-to-income (DTI) ratio

Cons of VA Loans:

-  Mandatory VA Funding Fee charged by the VA
-  Intended for primary residences
- Not all real estate agents are familiar with VA loans

Other Popular Loans

Conventional Loan

Pros of Conventional Loans:

- Competitive interest rates
- Low down payments
- PMI can eventually be eliminated

Cons of Conventional Loans:

- Generally lower debt-to-income ratios are required
- A minimum credit score is required to qualify for a loan
- Larger down payment