Conventional and Non-conventional Types of Mortgage Loans

In the past there were three types of mortgage loans available for any home buyers and these were –

• Fixed rate mortgage loans that was the conventional type;


• FHA mortgage loan; and


• VA mortgage loan.

However, like most other areas of commercial and financial world, mortgage loan zones have also undergone a lot of evolution. Thus, numerous types of mortgage loans are available for the prospective borrowers to day.

Most Popular Three Types of Mortgage Loans

Most popular types of mortgage loans these days are –

• Fixed rate mortgage loans that could be 10, 15, 20, 30, 40, or 50 years fixed rate mortgages and they are completely amortized as well.


• FHA mortgage loans are government sponsored and covered by insurance funded into the loan. Any first time mortgagor is ideal candidate for such loans since the down payment is minimal. Another great advantage of this type of mortgage loans is that the FICO scores do not count.


• VA loans are awarded by government for the veterans who have served in the Armed services of the country or to their spouses. Requirements relating to sanction of such mortgage loans depend on the period of services rendered and the loan is also covered by guarantee by Department of Veteran Affairs though they are funded by conventional lenders.

Other Types of Mortgage Loans

Besides the above three most popular types of mortgage loans there are also other types of mortgage loans available for the prospective mortgagor. Such mortgages include-

• Interest only mortgage loans does not mean that the borrower will pay interest for the loans obtained only but they pay only interests on the mortgage loans for a specified period and then start repaying the principal as well.


• Sometimes lenders grant a mortgage on interest only conditions and then require a balloon payment after the specified period when the borrower pays only the interests.


• There are also some hybrid types of mortgage loans that are combination of simple and complex mortgage plans.

Types of Mortgage Loans that are Hybrid

A few hybrid types of mortgage loans are available for the prospective borrowers that are based on combination of features of different types of mortgage plans. Some of the widely used hybrid mortgage loans are –

• Option ARM mortgage loans are adjustable rate plans where the interest rates fluctuate periodically. Borrowers have the option to choose from a host of options for payment as well as index rates. In any case, borrower must be careful about minimum payment option as it could result in negative amortization.


• Combo or piggyback loans are those where there is a first and second mortgages that could either are adjustable or fixed rate loans or even a combination of both.


• In adjustable rate mortgage loans the interest rates fluctuates either way on monthly, bimonthly, quarterly, semi annually or annually and could also remain fixed for certain amount of time before fluctuating.


• For payment of lower initial interest rates a mortgage buy down is the ideal method. In lieu of payment of fees, interest rates are lowered by the lender.

Besides all these types of mortgage loans there are also a few special types like the streamline K mortgage loans, bridge or swing loans, equity mortgage loans, and reverse mortgage loans available for senior citizens.