What Is Mortgage & Types Of Mortgage

Mortgage loan is a loan used to purchase real estate or refinance an existing mortgage on a property. The property is used as collateral for the loan and the borrower is required to make regular payments of principal and interest to the lender until the loan is paid off. The terms of the loan such as the interest rate and repayment period can vary depending on the type of mortgage, the credit worthiness of the borrower and the value of the property. The mortgage process involves several steps including pre approval, loan application, underwriting and closing. Borrowers should carefully consider their financial situation, the terms of the loan and the impact of the loan on their budget before applying for a mortgage loan.

Types Of Mortgages

There are several types of mortgages including:

Fixed Rate Mortgage

Fixed rate mortgage is a type of mortgage loan in which the interest rate on the loan remains the same for the entire term of the loan typically 15 to 30 years. This means that the borrower’s monthly payment remains the same making it easier to budget for housing expenses. The stability of a fixed rate mortgage can also provide peace of mind for borrowers who are concerned about changes in the economy or interest rates. With a fixed rate mortgage, the borrower can budget for their housing expenses over the long term knowing that their monthly payment will not change. This stability makes a fixed rate mortgage a popular choice for borrowers who plan to stay in their home for an extended period of time.

Adjustable Rate Mortgage

An adjustable rate mortgage (ARM) is a type of mortgage where the interest rate can change over time. The rate is usually tied to an economic index such as the prime rate or the London Interbank Offered Rate (LIBOR) and is adjusted annually. The change in interest rate can result in a change in the monthly payment amount. ARMs typically have a lower initial interest rate than fixed rate mortgages which can make the monthly payments lower in the short term. However, the potential for interest rate increases over time means that the monthly payment may become higher in the future. ARMs are often favored by borrowers who plan to sell their home or refinance their mortgage before the interest rate adjusts or by those who are comfortable with the potential for payment increases in exchange for a lower initial rate.

FHA Mortgage Loan

An FHA known as Federal Housing Administration loan is a type of mortgage that is insured by the Federal Housing Administration, a government agency. The FHA does not provide the loan itself but it does provide insurance to lenders in the event that the borrower defaults on the loan. This insurance makes it easier for borrowers to qualify for a mortgage as the lender is protected against potential losses. FHA loans are designed to help low to moderate income borrowers purchase a home. To qualify for an FHA loan, borrowers must have a lower debt to income ratio and a lower credit score than is typically required for conventional loans. FHA loans also typically require a lower down payment making home ownership more accessible for many borrowers.

VA Mortgage Loan

A VA known as Department of Veterans Affairs loan is a type of mortgage that is guaranteed by the VA and is available to eligible military service members, veterans and surviving spouses. VA loans are designed to help military borrowers purchase a home and are known for their favorable terms such as no down payment requirement, no private mortgage insurance (PMI) requirement and competitive interest rates. VA loans are offered by private lenders but the VA guarantees a portion of the loan, which makes it easier for borrowers to qualify and provides added security to the lender. To be eligible for a VA loan, borrowers must have served in the military or be a surviving spouse and must meet certain requirements such as income, credit score and eligibility for a VA certificate of eligibility. VA loans can be a good choice for military borrowers who want to purchase a home and take advantage of their VA benefits.

Jumbo Mortgage Loan

A jumbo loan is a type of mortgage loan that exceeds the conforming loan limit set by government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Jumbo loans are designed for high cost areas and for borrowers who are purchasing high end homes or need to borrow a large amount of money. Jumbo loans typically have higher interest rates and stricter underwriting standards compared to conforming loans as the lender is taking on a greater risk by lending a larger amount of money.

Balloon Mortgage Loan

A balloon mortgage is a type of mortgage loan that requires a large lump sum payment at the end of the loan term typically 5 to 7 years. Before the balloon payment is due, the borrower makes regular lower monthly payments to pay off the interest on the loan. The lower monthly payments can make a balloon mortgage attractive for borrowers who need to lower their monthly housing expenses.

Interest Only Mortgage

An interest only mortgage is a type of mortgage in which the borrower only pays the interest on the loan for a specified period of time typically 5 to 10 years. During this time, the loan balance does not decrease and the borrower does not build any equity in the property. At the end of the interest only period, the borrower must start paying both principal and interest on the loan which can result in significantly higher monthly payments.

Reverse Mortgage

A reverse mortgage is a type of loan that allows homeowners 62 years of age or older to convert a portion of the equity in their home into cash. With a reverse mortgage, the borrower does not have to make monthly payments on the loan but instead the loan balance increases over time and is eventually repaid when the borrower sells the home.


Mortgage is a loan used to finance the purchase of a property where the property serves as collateral. There are several types of mortgages each with its own set of terms, interest rates and qualifications which allow borrowers to choose the best option that fits their financial situation and goals. It is important to understand the terms of the mortgage, the interest rate and the monthly payment before making a decision as a mortgage is a long term financial obligation. Seeking the advice of a financial professional or a real estate agent can help ensure a well informed decision.