Common Types of Mortgages That Home Buyers Should Know

Thinking of purchasing a home?

“This is the largest financial decision you’ll probably ever make,” says Esther Phillips, senior vice president of sales at Key Mortgage Services.

One of the most important things you can do as a first-time buyer is to educate yourself on the ins and outs of financing. For buyers, there are many different types of loan options out there, each with unique advantages and drawbacks.

As a buyer, what types of mortgage loans are available to you? And which type of loan will help put you in the best possible position to achieve your long-term financial goals?


A fixed-rate mortgage has a constant interest rate, and monthly payments that never change for the life of loan. Fixed-rate loans are often thought of as the “classic” or “traditional” mortgage instrument. They offer a great deal of long-term security, protecting you from rising interest rates or changes in the economy.

These mortgages are available with different terms. Most common are terms of 15 or 30 years.

  • 30-year fixed-rate mortgages
    These loans are popular because they feature a consistent interest rate and steady monthly payments. Because you are locked into your mortgage rate, you won’t have to worry about your expenses going up due to changes in the market, which can make these loans a great, reliable deal for homeowners in the long run. Typically, this option is a good choice for those who are planning to stay in a home for seven years or longer.
  • 15-year fixed-rate mortgages
    This type of loan is amortized for a 15-year period and features consistent monthly payments. Generally, because of the shorter timeframe, 15-year fixed rate loans offer slightly lower interest rates than 30-year, and can allow buyers to build equity and own their home more quickly. However, these loans typically come with higher monthly payments than 30-year fixed-rate loans.


With an adjustable-rate mortgage (ARM), your interest rate will change periodically. This means that the amount you pay per month could go up or down over time, depending on the state of the market. So, if market rates rise, the variable interest rate will also likely rise, affecting your monthly payment. If market rates decrease, your monthly payment could decrease as well.

Generally speaking, ARMs offer lower interest rates than fixed-rate mortgages. Most ARMs also place caps on the amount that your rate can fluctuate in a month. With some types of ARMs, you can lock in to a fixed interest rate for a set period, and then plan ahead for your pre-determined adjustment interval.

The rule of thumb for adjustable-rate mortgages? The longer you ask the lender to charge you a specific rate, the more expensive the loan will be. It’s important to consider your starting rate, as well as the frequency with which you will face rate changes moving forward.

There are different types of ARMs:

  • Hybrid ARM (such as 3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM)
    These loans offer some of the benefits of fixed-rate loans, along with some of the benefits of adjustable-rate mortgages. With this arrangement, you’ll have a fixed rate for a set period of time, and then convert to a variable rate down the line. For instance, a 5/1 loan offers a fixed monthly payment and interest for five years, then turns into a traditional adjustable-rate loan for the remainder of the term. These loans can be a good fit for those who plan to move or refinance before their rate adjustment occurs.
  • Annual ARM
    With this type of loan, your rate is recalculated once per year.
  • Monthly ARM
    With this type of loan, your rate is adjusted every month.

Government-Insured Loans

If you meet certain qualifications, you may also be able to attain a loan backed by a federal government program. Several different government agencies have programs in place to back loans for home buyers.

  • Federal Housing Administration (FHA) Loans
    FHA loans are issued by private mortgage lenders, and insured by the FHA. These loans are designed to assist homeowners who may not have impeccable credit or significant savings for a down payment. An FHA loan may allow a buyer to purchase a home with a smaller down payment. However, there are also several additional fees associated with FHA loans, including an upfront mortgage insurance premium, as well as an annual mortgage insurance premium, to be paid until you pay off or refinance the loan.
  • Department of Veterans’ Affairs (VA) Loans
    VA loans offer flexible and low-interest loans to retired and active duty military and their families. Generally speaking, VA loans allow borrowers to purchase a home with no down payment, no mortgage insurance requirements, and limits on closing costs. For additional assistance, Baird & Warner offers active duty and retired service members greater flexibility and cost-savings with our exclusive Military on the Move program, which provides a rebate to active and retired veterans who are buying or selling a home.
  • United States Department of Agriculture (USDA) Loans
    USDA loans are designed to help home buyers who are looking to purchase homes in rural areas. In order to qualify for this type of loan, your selected property must be in an eligible area, and you must meet certain income requirements. Some USDA loans offer financing with zero down payment, and low interest rates for the life of the loan.

Choosing What Works for You

Keep in mind that the above list is just a sampling of some of the most common types of mortgage loans available to buyers. There are certainly others, including jumbo loans and other types of non-conforming home loans. There are also many state and local programs designed to help first-time and repeat home buyers get down payment and loan assistance. Your dream home might be more attainable than you think.

For the past 30 years, Baird & Warner has been offering residential sales, mortgage, and title services all under one roof —  because we know it gives our clients a better experience.

To understand all of your options and help determine which strategy will be the right fit for you, don’t hesitate to get in touch with your local Key Mortgage loan officer.

“Not only do we offer loans, but we also provide our clients education and guidance,” Esther explains. “We help educate first time homebuyers on which types of loans are available, and which will be the best choice for them. Many home buyers have many different options available.”

Your personal Key Mortgage loan officer and their team will guide you through the loan process at every step of the way, from your initial application all the way through to your closing. Along the way, they will help you make the decisions that are right for you and yours, answering any questions you may have and making the entire mortgage process easier.

Looking for a second opinion on your current home buying plan? Key Mortgage can help there, as well, thanks to the Second Look program. With Second Look, a Key Mortgage officer will give you a no obligation, cost-free examination of your loan structure, mortgage details, and interest rate. Having this second opinion could mean thousands of dollars in savings over the life of your loan.

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