Real Estate

Types of Loans

Major Loan Categories

  • Amortized loans: A fixed-rate amortized loan payment plan features constant payments of principal and interest throughout the life of the loan; also called direct reduction loans.
  • Adjustable-rate mortgage: With an ARM, the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly; the initial rate and payment amount on an ARM will remain in effect for a limited period.
  • Balloon payment loans: Does not fully amortize over the term of the note, thus leaving a balance due at maturity, requiring a large final “balloon” payment.
  • Conventional loans: Conventional loans refer to mortgages not backed or insured by government agencies.
  • FHA loans: Federal Housing Administration loans refers to a loan that is insured by the agency and protects the lender from loss in the event of borrower default. The FHA is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.
  • VA loans: The Department of Veterans Affairs (VA) guarantees loans for eligible veterans and their spouses; the term “VA loan” refers to a loan that is not made by the agency, but guaranteed by it.
  • Conforming and nonconforming Loans: Describes loans that either do (conforming) or do not (nonconforming) meet Fannie Mae and Freddie Mac guidelines.