There are several different types of loans available when applying for a mortgage:
Conventional: These loans can be broken down into two types: Fixed-Rate loans and Variable-Rate loans. A Fixed-Rate loan is generally a 15-year or 30-year loan. The interest rate of this type of loan does not change during the life of the loan; therefore, your principal and interest mortgage payment will stay the same until the loan is paid off.
A Variable-Rate loan is one in which the interest rate will change over the life of the loan period. These types of loans are commonly referred to as Adjustable Rate Mortgages, or ARMs.
Hybrid Loans: These loans will generally have a fixed rate for the early life of the loan, such as the first 3, 5, or 7 years, and then roll over to a variable rate loan once the fixed period ends.
Government Program Loans: These loans are insured loans through either the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). A government program loan generally requires a smaller down payment than a conventional loan. In addition, the interest rates on these loans are commonly below the current market rates. FHA loans have special programs for first-time home buyers and low-income home buyers.
Bridge Loans: This type of loan is for buyers who plan to close on their new home before they can sell their current one. A bridge loan can be set up to completely pay off the old home’s mortgage, or it can be set up by adding the financial obligation of the new home to the existing amount of debt. A bridge loan is a short-term loan, usually one year, and includes large, prepaid interest.