Types of Credit
Credit is another word for borrowing power. Credit cards, home loans, student loans and auto loans are all considered a type of credit. One of the biggest types of credit decision any borrower makes is the type of mortgage or second mortgage they choose.
Types of Credit: Mortgages
A mortgage is a loan used to finance a home purchase or refinance an existing home loan. What are some common mortgage types?
- Fixed rate loans: Type of credit featuring a fixed interest rate and payment throughout the term of the loan.
- Adjustable rate loans: Type of credit featuring variable interest rates and payments that change over the life of the loan.
- Government loans: Type of credit guaranteed against default by the government (VA loans, FHA loans).
- Jumbo loans: Type of credit used to purchase or refinance an amount above industry-standard conforming loan limits.
- Purchase loans: Type of credit used to purchase a home or investment property.
- Refinance loans: Type of credit used to replace existing financing of a home or property. Typically, borrowers refinance to lock in lower rates or tap into available home equity for cash.
- Debt consolidation loans: Type of credit used to payoff other debts with funds from the mortgage.
Types of credit: Second Mortgages
A second mortgage – also known as a home equity loan – describes the type of credit available to homeowners who have available equity in their home. Available home equity means that borrowers owe less money on their first mortgage than what their home is actually worth. The difference between the home’s value and the balance of the mortgage is called “home equity.”
There are 2 basic types of home equity loans:
- Home equity line of credit (HELOC): Features an adjustable rate and the ability to borrow and repay over and over again, similar to a credit card.
- Home equity loan: Features a fixed rate and offered in one lump sum that is repaid with equal monthly payments.
Other types of credit:
- Reverse mortgages
- Credit cards
- Personal loans
- Auto loans
- Student loans
- Business loans
