Generally mortgage loans are two types and they are discussed briefly here:

Government Loans: This category of loan is divided in two types.   Federal Housing Administration (FHA) Loans and Veteran's Affair (VA) Loans. FHA is designed for people who earn low to moderate income. These loans offer insurance to the lender, instead of to the borrower or his family, in the event of a default on a home loan. And VA is meant for ex-military personnel who have had an honorable discharge. As all mortgage loans are bilateral, the borrower and the lender share a common responsibility in identifying appropriate each other so that the lender is benefited financially and the borrower realized his dream come true.

Conventional Loans: But unfortunately, conventional loans cannot be insured. And they are four types of loan: Fixed Rate Mortgage Loans, Adjustable Rate Mortgage Loans, Balloon Mortgage Loans and Sub-prime Mortgage Loans.

Fixed Rate Mortgage loan: It provides a non-fluctuating, fixed interest rate over the entire loan period, which may be 15, 20 or 30 years. 15 years term loan is the least expensive.

Adjustable Rate Mortgage loan: According to economic trends Interest rates in this loan fluctuates. These Loans come with a maximum limit, known as 'cap', up to which interest rates can go. Interest rates in ARM loans are sometimes 'tied' by lending organizations, Bank Certificates, Federal Treasury Bills or any other financial index. Global economy changes cause these indices and consequently, the interest rates to change. Usually, Interest rates on these loans are lower than that on Fixed Rate Mortgage loans.

Balloon Mortgage Loan: It involves a loan period of 5 to 7 years. These loans usually require the borrower to repay the balance as one final payment, known as "balloon" payment.

Sub-prime Mortgage Loan: It is suited to borrowers with poor or not-so-perfect credit.