Different types of mortgages – Which is best for me?

by RM Team

Getting a new mortgage or refinancing your existing mortgage is actually a much simpler process than you might expect. For many people, the hardest parts are choosing what type of mortgage to take out and collecting paperwork. To give you an idea of how getting your next mortgage will go, here are the steps that most borrowers follow:

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Start collecting paperwork. Although requirements vary from lender to lender, if you have three months of bank statements for your checking and savings accounts, three months of pay stubs, and tax returns for the last two to three years you should be in good shape.
Get a copy of your credit report and review it. You are legally entitled to receive one free report per year from each of the three bureaus through the government-sponsored website at freecreditreport.com. While this site will not give you your credit score, it will give you the opportunity to review your credit report for errors. If you find them, correct them, since your credit will determine your ability to get a mortgage and may also determine your rate.
Decide what type of mortgage is best for you. The links below will help you understand all of the different mortgage programs that could be available to you.
Find a lender. You can use our information on Mortgage Lender Facts page to research many different lenders and their offerings.
Make contact with a lender and begin the application process by filling out their paper form or an online form. You will also need to supply any required supporting information like pay stubs and bank statements. You may also need to make your good faith deposit toward closing costs at this time. Don’t worry, though. If you are taking out a no closing cost refinance or mortgage, you will get it back at closing!
Wait for the lender to approve your mortgage and complete their underwriting. You may need to supply additional information or be available to show an appraiser through your home.
Send any money that you need to close the loan into the escrow account.
Come to the closing and sign the loan documents.
If you are getting a mortgage to buy a new home, enjoy your new home. If you refinanced to save money, enjoy your new lower payments.

Now that you know what to expect from the mortgage process, here is information on all of the different types of mortgages that you have available to you:

- 5 Year Fixed Refinance. 5 year fixed rate refinance loans are excellent ways to get your home paid off very quickly. If you have a mortgage with 10 or fewer years left, they can save you a great deal of money.
- 10 Year Fixed Refinance. 10-year fixed rate refinances carry a lower payment than a 5 year loan, but still help you pay your home off quickly. They carry very low rates and can save you a great deal of money compared to a traditional 30-year loan.
- 15 Year Fixed Refinance. 15-year fixed refinance mortgages are the gold standard for shorter-term mortgages. While the payments are usually a little less than 50 percent more than a 30-year’s payment, you get to pay the loan off in half the time. Unlike other short-term mortgages which can be hard to find, most lenders offer a 15-year option and, thanks to the competition, they usually have much lower rates than 30-year refinances.
- 20 Year Fixed Refinance. The 20-year loan is the Goldilocks mortgage. It offers a fast payoff like a 15-year loan, but with a more affordable monthly payment.
- 25 Year Mortgage & Refinance Rates. 25-year refinances are perfect if you are refinancing a relatively new 30-year loan. Choosing a 25-year loan may save you a little bit of interest but, even more importantly, they prevent you from adding 30 more years of interest payments on top of the time that you have already spent paying down your old loan.
- 30 Year Fixed Refinance. The 30-year fixed rate refinance mortgage is the most popular home loan. It offers the security of a set interest rate with very reasonable payments. Since almost every lender writes 30-year loans, the competition in the market place keeps rates low, as well.
- 40 Year Fixed Refinance. 40-year loans are relatively rare but offer the lowest possible fixed rate payment. If you take one out, you will pay more interest over its life, but you will also save money every month you make the payment.

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- No Closing Cost Refinance. If you are willing to pay a slightly higher interest rate, you can refinance your mortgage without paying any money at closing or having anything added to your balance. Given that you can usually write off the increased interest, these mortgages are excellent ways to meet your financial goals.
- The Fannie Mae Refinance Plus Program. Fannie Mae’s Refinance Plus program lets you refinancing your existing Fannie Mae mortgage even if you owe more than your home is worth. It also features easier qualification standards than a regular mortgage.
- VA Streamline Refinance Rates. The VA’s streamline program lets holders of existing VA mortgages refinance to a new, lower-rate loan with almost no qualifying requirements. Veterans and military service people who qualify for the Interest Rate Reduction Refinancing Loan program do not have to go through credit or income verification and do not need an appraisal.
- Refinance Mobile Home. While the market for mobile home mortgages is different from the traditional single-family residence mortgage market, mobile home owners can still take advantage of today’s attractive interest rates. Many mobile home refinances even carry the security of a long-term fixed rate.
- Refinance a Condo. Condos sometimes require different refinancing programs than detached single family residences. Luckily, many lenders remain willing to work with you and your Homeowners’ Association to help you find the right mortgage.
- What is a Jumbo Loan. Jumbo loans are mortgages for amount above the “conforming loan” limit set by the US Government. Since banks cannot sell their jumbo loans to Fannie Mae or Freddie Mac, they frequently carry higher rates and require higher down payments. The secret to getting a good jumbo loan rate is to shop around.
- Refinance and Renovate Loan. These loans are a variation on the traditional cash-out refinance loan. A renovation loan lets you borrow more than your home is worth, but require that the extra money be spent to improve your property. Many will only disburse the extra funds to contractors, ensuring that you actually use the money as the lender intends.
- Private Lender Refinancing. Private lenders are individual investors that choose to loan out their money to people who cannot get mortgages through traditional sources. While they are usually more expensive than bank financing and they usually require a higher down payment they can also make loans that banks will not. For this reason, the private money market is an especially popular debt source for investors.
- Mortgages For The Self-Employed. Self-employed people present a unique challenge for mortgage refinancing. Since you do not have traditional income that comes on a regular paystub, lenders need to analyze your business’ income and expenses to determine if you can pay the loan. If you can take advantage of a self-certified loan or a program that does not require you to go through income verification, like a VA Streamline, refinancing will be even easier.

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Refinance a Home Equity Line Of Credit Loan. Home Equity Lines of Credit, or HELOCs, are technically second mortgages. Because their low initial rates and interest-only payments eventually expire, they end up carrying very high payments. If you have enough equity, you can refinance them into a first mortgage and get a very low rate. Alternately, you can also refinance them into another HELOC and restart the low-rate period.
Wholesale Mortgage Rates. Many refinancing loans are parts of a larger wholesale mortgage. Wholesale rates are the rates that brokers and lenders pay for a large pool of money that they then split up into loans for individuals like you. When you understand the wholesale rate, you can see how large of a yield spread premium, or markup, your broker or lender is charging you. This makes it easier for you to comparison shop for the best rates.
Interest Only Refinance Mortgage Rates. Interest-only mortgages let you pay just the interest portion of your payment, reducing your monthly payment significantly. Combining this with low rates can save you a lot of money every month, but interest-only loans have a trade-off. After the interest only period, which is usually 10 years, you then have to pay the entire balance of the loan off in the remaining time. This will make your payments go up.

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