Conventional loans - these loans are non-government backed loans and are offered with fixed or adjustable terms.

Government loans - These loans are insured or guaranteed by the U.S. government

(FHA and VA loans) or the State of California (CALHFA loans). Also see First-Time Home Buyer Loans. 

Fixed-Rate Loans - These loans provide for the regular payment of principal and interest for loan terms up to 40 years.

The most common fixed rate loans are fixed for 15, 20 or 30 years. Your principal and interest payment don't change

providing for easier budgeting and financial planning.

Adjustable-Rate Loans (ARM'S) - The interest rate for an adjustable-rate loan is the sum of an "index" that can and will move plus

a "margin" that stays the same for the life of the loan. The index is a rate set by market forces. ARM'S usually offer lower initial

interest rates and hence lower principal and interest payments than most fixed rate mortgages. However payments will adjust

up or down at times specified in your loan documents and can result in significant payment increases.

The most common adjustablerate loans provide for interest rates fixed for the initial 1, 3, 5, 7 or 10 years.

(These loans are sometimes referred to as "Hybrid Adjustable-Rate Loans.") A "Hybrid Adjustable-Rate loan" usually carries

a lower initial principal and interest payment than a fixed-rate loan for the initial fixed period of 3, 5,7 or 10 years. After the

initial fixed period these loans operate like an adjustable-rate loan, with principal and interest payments adjusting up and

down based on a specific interest rate index that can move plus a margin that stays the same for the life of the loan.

People who choose this type of loan plan to move or refinance before the fixed period ends.

Interest-Only Loans - There are a variety of interest-only loans. Oftentimes interestonly loans are "Hybrid Loans" (see above)

because there is an introductory period of up to 10 years where you can elect to make an interest-only payment and afterwards the

interest-only loan (in most cases) can adjust at least once. An interest-only loan, properly utilized, can be a very good financing

alternative. For a fixed period of time you are only required to make the "interest only" mortgage payment. The problem with this

scenario is that you are not reducing the principal. Interest only loans allow for principal reduction. You can pay as much as you

want over and above the interest-only payment amount and the following month your mortgage payment will be reduced

because your payment is calculated on a reduced principal balance.

 There are several popular indexes. The Libor rate is based on rates that contributor banks in London offer each other for

interbank deposits. There are several Libor rates used for mortgage loans; the one-month Libor, the six-month Libor

and the one-year Libor.

The prime rate is the interest rate charged by banks to their most creditworthy customers. The prime rate does not change on

a regular basis but almost always changes after the Federal Reserve Board changes short-term interest rates.