Home mortgage loans are loans secured against tangible properties that financial institutions or private lenders hold according to the asset's prevailing market value. When purchasers opt for home mortgage loans, they enter into a legal agreement with the lender to pay back the original loan amount plus interest over a specified time period.

Home mortgage loans can be categorized into various types depending on their interest, term, payment, pre-payment conditions and scores of other factors. Home buyers should understand the types of home mortgage loans in order to make informed decisions.

Home mortgage loans are predominantly classified into the following types:

Fixed-Rate Mortgages

Most borrowers choose traditional fixed-rate home mortgage loans. Their appeal lies in the fact that they are viewed as stable, safe and non-fluctuating loans. With this type of mortgage loan, the interest rate remains unchanged throughout the loan's life. This allows borrowers to set aside a fixed amount each month for the repayment of the principal and interest for the entire duration of the loan.

Adjustable-Rate Mortgages

Adjustable-rate home mortgage loans have interest rates and subsequently monthly payments that fluctuate throughout the tenure of the loan. The periodic variations in the interest rate of adjustable home mortgage loans are determined by a specific market index. Consumers generally obtain adjustable-rate mortgages when fixed rate home mortgage loans are expensive or hard to obtain. This shifts the burden of risk to the borrower.

Federal Housing Administration (FHA) Mortgages

The Federal Housing Administration insures home mortgage loans for moderate- to low-income groups and first-time buyers. FHA loans require a considerably smaller down payment and the loan interest rates are also lower than regular fixed rate home mortgage loans. The FICO scores of borrowers do not matter while applying for an FHA loan. Borrowers can use an FHA loan to buy single or even multi-family homes, provided they will be occupied by the owner.

Equity Mortgage Loans

Equity home mortgage loans use the equity of the borrower's property as collateral to borrow funds. These home mortgage loans are used primarily to undertake major expenses.

Balloon Mortgage Loans

Balloon home mortgage loans are fixed-rate loans that have a short term (5-7 years) and small monthly payments. They are similar to 30-year fixed home mortgage loans. At the end of the loan term, the principal loan amount still remains and it can be paid to the lender in full either by refinancing the property or with personal savings.

Interest-Only Loan Mortgages

Interest-only home loan mortgages allow the borrower to pay only the interest on the principal amount borrowed for a specific period. Since the principal is not paid during the stipulated period, the monthly sum in interest-only home loan mortgages is a lower amount over a shorter duration.