In the insurance and mortgage industry, there are many different and entirely individual types of home loans. There is quite the variety of loans, and each loan is different because of its respective benefits, down payment percentages, and flat rates.
Every loan is ‘custom tailored’ to whoever the benefactor or borrower is, depending on their needs. What works for you, depending on your particular set of requirements, may not work for someone else, and it is highly unusual (although technically not unheard of) to meet someone who took out the same loan as you! This is especially because the kinds of benefits, down payments, rates, interest, and all sorts of other things vary so widely.
1. Flat (Fixed) Vs. Adjustable Rates
The most common umbrella terms that all loans fall under are fixed vs. adjustable rate loans.
- Flat Rate Loan (FRL): These kinds of loans have fixed rates (hence the name) throughout the entirety of the loan period. Because of this, what money you pay back to the investor every week, month, or year, will stay the same. This means there is no fluctuation depending on your budget, your needs or their needs, and on any other factors. This is accurate enough even for long term loans, such as a 30-year Flat Rate Loan for example. It has the same loan period, monthly rate, interest percentage and original down payment percentage.
- Adjustable-Rate Mortgage Loans (ARMs): On the other hand, we have a type of loan that is the polar opposite of an FRL (Flat Rate Loan), and it comes in the form of an ‘ARM’ Loan. These kinds of loans have an interest and introduction (also called down payments) that tends to fluctuate, or to be more accurate, ‘adjust’ (hence the name!) from time to time.
This can vary on a lot of factors, however, so let’s name a few. To start off, you have the market; however well the housing market is doing directly reacts to how much you are paying per month, and vice versa.
Then we have more ‘down to earth’ examples, such as your credit score. If your credit score gets boosted by, say, 80 to 200 points for some odd reason, you could end up paying a significant amount less per month. The opposite is accurate as well. If your credit score goes down 80 to 200 points, or indeed any number that is more than 15, you can end up doubling or even tripling what you are paying per month.
No hard feelings, though! You are not being betrayed or scammed in any way! This is simply a reaction to your credit score. When your credit score is dangerously low or is proving to be dropping at an increased rate, lenders tend to increase your payment as an automatic safety measure, because the likelihood of you fulfilling your contract when you don’t have enough money to eat at Chilis is so much lower.
2. Conventional Vs. Government Insured
You can probably guess by the title which one the investor prefers more; traditional trust-by-trust loan, or a government insured and legally protected the loan.
The two titles of these loans speak for themselves, so there is not much to explain!
- Conventional Loan: This is a standard loan that is not protected, guaranteed, insured or pre-insured by the government in any way, shape, or form. This sets it apart massively from the other three types of loans; USDA, VA, and FHA.
Government Insured Loans: This is an umbrella term, and there are three different types of loans that fall under this category. FHA, VA, and USDA. All of these are insured and protected by law, so if the borrower accidentally or purposely defaults on their loan (which tends to happen from time to time), then the government reimburses the lender with no hiccups whatsoever.
There are other types, here’s a little information in addition to the above.