Types of Loans

There are many different types of loan programs for borrowers to choose from. Choosing a knowledgeable loan consultant who can help you choose the right product is extremely important. A real estate loan is a huge obligation. Choosing the right product can help you save money, help you get into the home of your dreams, and help you obtain your future financial goals.

Fixed Rate Loan: These are loans that have an interest rate that remains constant through the life of the loan. The most standard fixed rate loan is amortized over a period of 30 years. Amortizing a loan schedules both principle and interest to be paid with each payment over the life of the loan, so that by the end of the loan term, the loan is paid in full.

Adjustable Rate Loan: A loan that has an interest rate that can change upward or downward at specific periods during the life of the loan. The change in the interest rate is usually tied to a financial index.

Fixed Period Loan: A loan with an interest that is fixed for a period of time, such as 3, 5, 7 or 10 years, after which it becomes adjustable.

Interest-Only Loan: A loan in which the interest is paid on the amount borrowed, but there is no requirement to make principle payments. This type of loan is often used to help borrowers who need a lower monthly payment than they would have with an amortized loan.

Buydown: A fixed rate loan in which the interest rate and payment are reduced for a specific period of time by paying the interest in advance.

Balloon: A fixed rate loan that is amortized over a period of time, such as 30 years, but is due and payable at the end of a shorter term.

Fixed Rate Second Loan: This type of loan can be placed behind a first loan, either as an equity loan or in a purchase transaction.

Equity Line of Credit: A loan that allows borrowers to draw on the equity in their home as needed. These loans have a variable interest rate tied to the prime rate. Interest is paid only on the amount that has been drawn on the line. It is also called a HELOC, for Home Equity Line of Credit. This type of loan can also be used as a second in a purchase situation.

CalHFA – California Home Finance Agency: A first-time homebuyer’s program sponsored by the State of California, subject to purchase price, income limits and availability of funds. This program offers lower than market rate financing for borrowers who qualify. It can also be combined with other programs to allow buyers to purchase a home with no money down and no closing costs.