Types of Mortgages

At first glance, selecting the right mortgage to suit your needs can be a little intimidating, but it doesn't have to be. The professionals at Spire Financial are dedicated to simplifying the process and educating you about the many available mortgage options.

This page provides you with a straightforward overview of various mortgage plans. Your Spire Financial representative will be happy to answer your questions about any of them.

Loan Types
Conventional Loan
Jumbo Loan
FHA Loan
VA Loan

Loan Structures
Fixed-Rate Mortgages
Adjustable-Rate Mortgage (ARM)
Fixed/ARM Hybrid
Fixed/ARM Hybrid, Interest First "Interest Only"
Balloon Mortgage
Low and No-Down-Payment Loans
LIBOR Interest Only Alternative Loan
Stated Income and Stated Asset Loans
Refinancing
Second Mortgage or Home Equity Loan

Conventional Mortgages
Conventional loans are loans that meet the requirements to be sold to the secondary market of Fannie Mae and Freddie Mac. Characteristics of a conventional loan are max loan amounts of $417,000 and a minimum downpayment of 5-10%.

The advantages of this type of loan are no mortgage insurance requirements if you are borrowing 80% or less of the house value (20% down). Also, conventional loans typically have competitive rates when compared to government (FHA/VA) or Jumbo loans.

A conventional loan is best suited for someone with a downpayment who is looking for the best rates and does not want to pay any type of mortgage insurance.
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Jumbo Loans
These are fixed- and adjustable-rate mortgages available to some home buyers looking for expensive homes in higher-priced communities. Jumbo loans pick up where Conventional loans stop. A jumbo loan is considered a loan amount higher than $417,000 in most areas.

The disadvantage of Jumbo Loans is that they're considered "high risk", so some lenders will charge higher interest rates for them. They typically also require a larger down payment.
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FHA Mortgages
FHA stands for Federal Housing Administration and they are responsible for insuring these types of government loans. FHA loans have a few distinct advantages. First, they allow you to only put down 3.5% down payment when buying a home and still offer competitive rates. They also allow for someone who already has an FHA loan to do a streamline refinance that doesn't require additional requalification of the borrower's assets, income or home value.

The downsides to an FHA mortgage is the borrowers will have to pay two different kinds of mortgage insurance. The first is an Up Front Mortgage Insurance Premium (UFMIP) that is 1.75% of the loan amount (1.5% on streamlines). The second is monthly mortgage insurance of 0.55% of the loan amount. Return To Top


VA Mortgages

Click here for the Frequently Asked VA home loan questions page.

VA stands for Veteran's Administration and they are responsible for insuring these types of government loans. VA loans are only offered to veterans of a military service and have their own set of pros/cons. First, they allow you to buy a house with no down payment and still offer competitive rates. VA mortgages also do not have mortgage insurance regardless of how much a borrower is borrowing against his house value. They also allow for someone who already has an VA loan to do a streamline refinance that doesn't require additional requalification of the borrower's assets, income or home value.

The downside to an VA mortgage is the borrower will have to pay an upfront Funding Fee. For a first time homebuyer this fee is typically only 1.5% to 2.15% of the loan amount based on your downpayment (if any). The good part about the funding fee though is that it can be financed in to the loan amount and not count against your loan-to-value ratio that determines what your down payment is. Return To Top

Fixed-Rate Mortgages
This loan type has fixed principal and interest payments for the life of the loan. It's ideal for borrowers who desire predictable monthly payments for the life of the loan, which is the main advantage of this loan.

A potential disadvantage of a fixed-rate mortgage is that the interest portion of the payment remains the same when interests rates go down. In addition, the portion of your monthly payment that includes insurance and taxes could change from year to year.
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Adjustable-Rate Mortgage (ARM)
This mortgage type usually starts with a lower interest rate and lower monthly payment. You are locked in to your payment and rate for the ARM's initial fixed term. So a 5 year ARM will stay at your fixed starting rate for the first 5 years, then will adjust with the market rate for the remainder of the loan. As market interest rates adjust over time your payment can either increase or decrease. This is a good loan for borrowers that want to take advantage of low interest rates, but have the financial means to handle the possibility that interest rates may rise over time.

The upside of adjustable-rate loans is that you can take advantage of low market interest rates when starting your loan. If interest rates drop, you'll automatically be able to benefit from an even lower monthly payment. The downside of this loan is that your monthly payments are less predictable after your initial fixed term, and rates can also rise, which automatically raises your monthly payment.

We Primarily suggest looking into this type of loan if you plan on upgrading to a larger house or moving in the 5 to 10 year range. If you are looking into staying in your property for life, this probably won't be a good fit and we suggest looking into a Fixed-Rate Mortgage.

ARMs come in a variety. The general rule is - the shorter the initial fixed term, the lower your starting rate. So a 3 year ARM will start with a lower interest rate then a 5 year, 7 year, etc.

So what happens when the starting fixed term expires? Go to our FAQ on How ARMs Adjust to get all the details.
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Fixed/ARM Hybrid
This loan combines elements from fixed- and adjustable-rate loans. It normally starts with a lower interest rate than a traditional fixed-rate mortgage. Your initial payment will be fixed for a specified term, and then your interest rate and principal payment will be adjusted over the remainder of your loan.

This can be a good loan for home buyers who are less financially established at the beginning of their loan, but who see themselves becoming more financially stable over time. It's also good for those who plan to sell their home or refinance early in the life of their loan.

An advantage of this loan is it provides you a chance to establish more financial stability during the early, fixed term of your loan. A potential downside for some would be that it requires careful planning, financial advancement and self-discipline.
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Fixed/ARM Hybrid, Interest First "Interest Only"
This plan can reduce your monthly payments by allowing you to pay interest only on your loan. A traditional mortgage entails making interest and principal payments each month. This loan option can be well suited for those who are less financially stable at the beginning of their loan, but who see themselves becoming more financially stable over time. It's also a good loan for those who plan to move or refinance their loan early.

The advantage of this loan is that interest-only payments are completely tax deductible. In addition, you have the option of paying down your principal, which can reduce the amount of interest you must pay each month.

A disadvantage of this loan is there is no scheduled principal reduction built into your monthly payments during the loan's interest-only period. When you are required to begin paying down your principal, your monthly payments may shoot up dramatically because your principal loan must be paid off in a shorter period of time.
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Balloon Mortgage
This loan typically has a lower interest rate than traditional fixed-rate loans. This may be a good option for first-time buyers who plan to sell after a few years, or people who must often move in their career.

The advantage of a balloon mortgage is the lower interest rate and simplicity of the loan. The disadvantage is after the initial balloon period (3, 5 or 7 years) you may be required to pay off the loan balance in one lump sum. If you're unable to do so, you'll usually have to refinance the loan or sell.
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Low and No-Down-Payment Loans
There are a variety of low or no-down-payment loans available. Your Spire Financial representative would be happy to tell you more about them. They can be good loans for first-time home buyers with excellent credit records but some income limitations.

The advantage of these loans is that you can secure a mortgage with little or nothing down if you have excellent credit. A potential downside is that low or no-down-payment loans usually require private mortgage insurance and/or possibly a higher interest rate.
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LIBOR Interest Only Alternative Loan
LIBOR (London Interbank Offering Rates) interest only loans offer a rate that is lower than other adjustable-rate loans. Your payments initially will be interest only, and after a specified period they will change to principal plus interest. This is a loan type well suited for first-time borrowers and those seeking larger loans who expect to be able to increase their payments after several years.

An advantage of LIBOR loans is that the interest rate historically remains below U.S. Treasury-based ARMs, which allows more people to qualify. A potential negative of this loan is that after a designated number of years your monthly payments will increase and the interest rate will automatically adjust annually.
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Stated Income and Stated Asset Loans
These programs require much less documentation from the borrower about their income and other assets. They can be ideal for those who are self employed or who have complicated financial records.

An advantage with these loans is that in many cases pay stubs and previous tax returns are not required. Disadvantages are that an excellent credit history is necessary and the types of properties these loans can be used for may be limited.
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Refinancing
There are a wide range of refinancing options available. Plans are as varied as home buying mortgages. Refinancing enables homeowners with equity to take advantage of lower interest rates and borrow cash for home improvements or consolidating debts.

A potential downside of refinancing is that you must close the new loan and this could entail paying some or all of the closing costs.
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Second Mortgage or Home Equity Loan
These loans are available in various fixed- or adjustable-rate packages. They can be ideal if you wish to avoid mortgage insurance protection or if you have substantial equity in your home.

These loans may enable you to create lower monthly payments, or provide cash to you for home improvements or consolidating debt. Such loans can increase the number or amount of monthly payments.
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