The four primary types of mortgage loans are Conventional, FHA, VA, and USDA loans. Conventional loans are not government-backed, while FHA, VA, and USDA loans are guaranteed by government agencies to assist specific borrowers (low-to-moderate income, veterans, or rural areas) with lower down payments and credit scores.
Types of home loans
The main types of mortgage are:
variable rate is which type of mortgage has historically been a better financial decision. History shows that short-term variable-rate mortgages have been the better financial choice, saving borrowers more than longer-term fixed-rate mortgages (e.g., five-year fixed rate).
The biggest drawback to a variable mortgage is if BoC has to dramatically increase rates to clamp down on inflation. Basically it burned a lot of people who bought in 2022 on variable rate mortgages when rates skyrocketed in H2 2023 through 2024.
Fixed-rate mortgages are the most popular choice for homeowners—and with good reason. These loans offer consistent monthly payments, making them ideal for long-term budgeting and financial planning.
However, most lenders still require your score to be at least 600 for an insured mortgage, even with a co-signer. How long does it take to raise my score enough to buy a home? Raising your credit score enough to buy a home (typically up to at least 600–680) can take anywhere from about 3 to 12 months.
Which type of loan is the cheapest? Generally, secured loans are cheaper than unsecured loans because they have lower interest rates and more extended repayment periods. However, secured loans also require collateral, which means you risk losing your assets if you default.
The 4 Cs of lending are Capacity, Capital, Credit, and Collateral, a framework lenders use to assess a borrower's creditworthiness by evaluating their ability to repay a loan, their existing financial reserves, their credit history, and the assets securing the loan, respectively. These factors help lenders gauge risk, making it easier for borrowers with strong profiles to get approved for mortgages and other loans.
A $20,000 loan over 5 years (60 months) costs roughly $2,600 to over $7,000 in interest, with monthly payments varying significantly by Annual Percentage Rate (APR), such as around $377 at 5% APR or $445 at 12% APR, meaning total repayment could range from approximately $22,600 to over $26,700.
What are the 6 types of mortgages? The six main types are simple mortgage, mortgage by conditional sale, English mortgage, fixed-rate mortgage, usufructuary mortgage, and reverse mortgage.
A Federal Housing Administration (FHA) loan is a government-insured mortgage that allows borrowers to buy a home with more lenient qualification requirements. FHA loans are a popular mortgage loan option for homebuyers who may not qualify for conventional loans based on their credit score or financial profile.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
The term length you choose for your mortgage depends on your goals and risk tolerance. Generally, with a longer term: Your interest rate will be higher, but your risk will be lower because you will be less exposed to market fluctuation. You will have to renew your mortgage and change rates less often.
Borrowers tend to prefer fixed rates over variable rates because: They offer protection from rising interest rates for the duration of the fixed rate. Budgeting is easier as borrowers will know exactly how much their monthly payments will be during the fixed period.