Types of mortgages and loans

Classify a loan on several dimensions

A mortgage loan can have several labels at once. Ask how its interest rate behaves, how principal is repaid, whether a government program backs it, and what purpose or collateral it serves. A conventional loan is not federally insured or guaranteed; conventional does not mean fixed-rate. FHA loans are federally insured, while VA loans carry a federal guaranty. Conforming conventional loans meet the applicable secondary-market purchase standards; jumbo loans exceed the applicable conforming size limit.

Rate and repayment

A fixed-rate loan keeps its contractual interest rate constant. An adjustable-rate mortgage, or ARM, resets under its terms, commonly using an index plus a margin, subject to applicable caps. A fully amortizing loan's scheduled payments retire principal and interest by maturity. With level payments and a fixed rate, the interest share decreases and the principal share increases as the balance falls.

A partially amortizing loan leaves a balance due as a balloon payment. A straight, interest-only loan pays interest periodically and leaves principal due at maturity. An interest-only period can also be followed by amortizing payments. Negative amortization means the payment fails to cover accrued interest and the unpaid interest is added to principal. A graduated-payment loan starts with lower scheduled payments that increase; depending on its design, early payments may cause negative amortization.

Purpose and security

A construction loan commonly releases funds in draws as work progresses. A bridge loan provides temporary financing between transactions. A blanket mortgage covers multiple parcels; a release clause can allow an individual parcel to be released under agreed terms. A package mortgage covers real estate and personal property. An open-end mortgage can secure later advances under its terms. A home equity loan commonly provides a lump sum, while a home equity line of credit allows draws up to an agreed limit during its draw period. A purchase-money mortgage may describe seller financing used to purchase the property. A wraparound loan includes an existing loan within a larger financing arrangement, with the existing debt remaining outstanding.

Reverse mortgages and New York protections

A reverse mortgage converts home equity into loan proceeds, commonly without scheduled monthly principal-and-interest payments; interest and charges can increase the debt. The homeowner still has property-related obligations. Product eligibility and repayment triggers depend on the program and loan terms. New York Real Property Law § 280 describes proceeds paid in installments, credit-line advances, lump sums, or combinations, and distinguishes a fixed-maturity term loan from a tenure loan that matures upon contingent events. New York Banking Law § 6-L prohibits prepayment penalties on high-cost home loans and prohibits loan flipping: refinancing without a tangible net benefit to the borrower considering the full circumstances.