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Types of Mortgage Loans – Lexington Law

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You’ve worked hard and now you’re ready to buy a new home. Find out about the types of mortgage loans to understand your options and make an educated decision.

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

As of mid-2019, around 37% of homeowners in the U.S. owned their property free and clear, which means any mortgage they had was paid off. That leaves 63% of homeowners still making that payment every month. What you might not realize is that there are many types of mortgage loans, and those millions of homeowners have different rates and terms. Understanding all your options is one of the first steps in choosing the type of mortgage that’s right for you and your situation.

What Is a Mortgage?

A mortgage is a loan that you get to buy property, such as land or a home. Like any other loan, mortgages have components such as principle and interest. But since they’re for such large amounts, they can be more complex than other loans. Some common components involved in mortgages include:

  • Principal. This is the part of the loan that is what you borrowed—or what’s left of that amount as you pay it down.
  • Interest. Interest is what you pay to be able to borrow the principal amount. It’s usually charged as a percentage of what you owe.
  • Terms. This typically refers to the structure of your loan, such as how many years it’s for.
  • Insurance. You may need to pay homeowners’ insurance as part of your mortgage payment. This is property insurance that helps cover losses if your home is damaged or lost in a fire or other covered disaster. Depending on how much you put down on your mortgage or what type of mortgage loan you have, you may also have to pay private mortgage insurance. PMI is coverage for the lender—if you fail to pay the mortgage, it helps them recoup some of their losses.
  • Taxes. Depending on where you live, you might need to pay property taxes on your home. This can be rolled into the mortgage and your monthly payments.

The Main Types of Mortgages

Many types of mortgages exist. Find out about some of the most common below.

Government-Backed Mortgages

What is it? Government-backed mortgages are at least partially ensured by the federal government. The loans don’t come from the federal government, however. They still come from commercial lenders.

Pros: Because the loan is government-backed, it’s seen as less risky than a conventional mortgage for the lender. That means that you might be able to get approved for one of these loans with a lower credit score or smaller down payment.

Cons: Some government-backed loans mandate PMI, which can make them potentially more expensive in situations where someone has good credit and a large down payment.

Types of Government-Backed Mortgages

  • FHA Loans. Loans insured by the Federal Housing Administration can be approved with a credit score as low as 500 under certain conditions. If you have a higher credit score, you might be able to qualify for an FHA loan with only 3.5 percent down.
  • USDA Loans. These loan options typically involve the purchase of homes in qualified rural areas. Borrowers must meet certain income and credit requirements.
  • VA Loans. The VA provides a number of programs to assist veterans and their families with housing, including one type of loan directly from the VA. The VA also backs three types of loans, and these loans often require no down payment.

Conventional Mortgages

What is it? These are traditional commercial mortgages that aren’t backed by another entity such as the government.

Pros: If your credit is good enough and you have a large down payment, you might be able to score a low interest rate. You’ll also potentially save money because, with a 20 percent down payment, you won’t have to pay PMI.

Cons: Conventional mortgages typically require a credit score of 640 or more. You might also have to wait a longer period of time after a major negative item on your credit report—such as a bankruptcy—than you would have to wait when applying for government-backed loans.

Conforming Mortgages

What is it? Conforming mortgages are conventional mortgages that comply with standards set by Freddie Mac and Fannie Mae. These are two government-controlled agencies that buy commercial mortgages after they’ve been issued. The agencies pay the banks for the mortgages. The lenders then have more capital so they can fund new mortgages—it’s an effort that was started decades ago to help make homeownership more accessible.

Pros: The loans have to conform to standards, which means lenders must do some due diligence to ensure the borrower is not high risk. While that does mean you must have a decent credit score and debt-to-income ratio, it also means the loan will likely have a decent interest rate.

Cons: Conforming loans are limited to certain amounts. In 2020, the limit is $510,400 for single-family homes. The limits do vary slightly by location, with higher limits in especially expensive areas.

Jumbo Mortgages

What is it? Jumbo mortgages are those that surpass the limits set by Freddie Mac and Fannie Mae for conforming loans. In 2020, then, that would mean mortgages for more than $510,400 in most areas.

Pros: Jumbo mortgages allow you to get funding for expensive or luxury properties.

Cons: Because of the size of the loan and the fact that it’s not eligible for purchase by Freddie Mac or Fannie Mae, the underwriting process can be extensive. You may have to demonstrate excellent credit as well as produce a variety of financial documents.

Interest-Only Mortgages

What is it? This is a type of adjustable-rate mortgage (you’ll learn more about this in a moment) where you only pay toward the interest for the first few years of the loan. After the introductory period is over, you pay both interest and principle, which means your monthly payments likely go up. Your interest rate is also adjusted each year based on various economic factors.

Pros: Paying interest only can significantly lower your mortgage payment at the front end of your loan.

Cons: Your payment will go up and you won’t have a fixed interest rate. Depending on what the markets do, that could increase your costs unexpectedly.

Mortgage Interest Rates

Mortgage interest rates are typically fixed or adjustable. Which one you choose depends on your financial situation and the type of loan you can qualify for.

Fixed-Rate Mortgages

With this type of loan, your interest rate is set in the contract and doesn’t change over the years. The advantage of this is that you know exactly what you’re going to pay and what rate you have. The downside is that if you buy a home during a time when interest rates in the market are high, you might get stuck with a higher rate.

You can seek a lower rate by refinancing your mortgage, though you’ll have to pay closing costs and other fees, and your credit and income might be reviewed again. Many people do refinance to get a lower rate to save money if they have a better credit and financial situation than they did when they bought their home.

Adjustable-Rate Mortgages

In an adjustable-rate mortgage, or ARM, your rate is variable. That means it fluctuates periodically. How often the interest rate might change depends on your mortgage contract. The downside of an ARM is that you can be surprised with large interest rate hikes. The upside is that if you buy a home when interest rates are high, you might see a lower rate if the markets swing that direction in the future.

Mortgage Terms

Terms refer to how long you take out a mortgage loan for. Many options exist, but the two most common are summarized below.

15-Year Mortgages

This means that you borrow the money for 15 years. The benefits of a short-term mortgage like this are that you pay your home off and own it outright much faster, and you do so with significant interest savings. The downside is that by squeezing the mortgage into only 15 years, you will have much higher monthly payments.

30-Year Mortgages

This is what most people consider the traditional mortgage term. The benefit is that you spread your loan out over a longer period, so you pay less each month. The downside is that by stretching out your payments, you pay more in interest over the life of the loan.

How to Get the Best Loan Terms

To save money on your home purchase, you want the most favorable terms possible. That means you want the best length of time for your needs and a good interest rate. Try these tips to achieve your goal:

  • Ensure your credit score is good or excellent. If your credit score is lackluster, you might want to consider taking time to improve it before buying a home.
  • Have a decent down payment. Putting 20 percent down on a home keeps you from having to pay PMI, for example. But even putting 10 percent down might help you get better rates than if you put only three percent down.
  • Compare lenders and rates to find the best deal. Shopping around for a mortgage within a short period of time doesn’t hit your credit hard because generally, the credit bureaus consider multiple mortgage applications within a few weeks of each other to be a single inquiry.

Mortgages can be complicated, and there are a lot of professionals who can help you figure out which one is best for you. When it comes to working on your credit score, the team at Lexington Law might be able to help you out by investigating and disputing inaccurate negative items on your credit report. Get in touch with us today to find out more.


Reviewed by Alexis Peacock, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Alexis Peacock was born in Santa Cruz, California and raised in Scottsdale, Arizona. In 2013, she earned her Bachelor of Science in Criminal Justice and Criminology, graduating cum laude from Arizona State University. Ms. Peacock received her Juris Doctor from Arizona Summit Law School and graduated in 2016. Prior to joining Lexington Law Firm, Ms. Peacock worked in Criminal Defense as both a paralegal and practicing attorney. Ms. Peacock represented clients in criminal matters varying from minor traffic infractions to serious felony cases. Alexis is licensed to practice law in Arizona. She is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Understanding Credit Card Security Codes

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Credit card security codes are an important security measure to prevent fraud and identity theft. They add an additional layer of safety when making purchases and help ensure the buyer is, in fact, the cardholder.

These security codes—often called CVV codes, short for “card verification value”—are three- or four-digit codes located directly on your credit card. They’re typically, but not always, asked for when making card-not-present transactions, such as those made online and over the phone. Here, we detail where to find them, how they work and why they’re important for consumer protection.

Where to Find Your CVV Code

The location of your CVV code depends on the credit card issuer:

  • Visa, Mastercard and Discover: The code will be three numbers on the back of the card to the right of the “authorized signature.”
  • American Express: The code will be four numbers on the front of the card above and to the right of the card number.
Where to locate your card's security code.

How to Find Your CVV Code Without the Card

Credit card security codes were designed to ensure that the person making a purchase actually has the card in their possession. Because of this, it’s impossible to look up your CVV code without having the physical card. This is why it’s important to have the physical card on hand if you need to make a purchase that requires a CVV code.

If an identity thief obtains your credit card number—for example, via shoulder surfing—may try to call the bank and pretend to be you in order to get the CVV code. However, banks typically don’t give out this information. Each financial institution has their own policies, but if you can’t read or access your CVV code, they will usually issue you a new card.

While most retailers require a CVV code when making card-not-present transactions, many don’t. In these instances, crooks would still be able to use your card.

How Are CVV Codes Generated?

According to IBM, CVV codes are generated using an algorithm. The algorithm requires the following information:

  • Primary account number (PAN)
  • Four-digit expiration date
  • Three-digit service code
  • A pair of cryptographically processed keys

Other Names for CVV Codes

Depending on the credit card company and when your card was issued, your security code may go by a different name. Even though there are many different abbreviations, the basic concept remains the same. Below are all the abbreviations and meanings for credit card security codes:

  • CID (Discover and American Express): Card Identification Number
  • CSC (American Express): Card Security Code
  • CVC (Mastercard): Card Verification Code
  • CVC2 (Visa): Card Validation Code 2
  • CVD (Discover): Card Verification Data
  • CVV (All): Card Verification Value
  • CVV2 (Visa): Card Verification Value 2
  • SPC (Uncommon): Signature Panel Code

Credit Card Security Code Precautions

While CVVs offer another layer of security to help protect users, there are still some things to be aware of when making card-not-present transactions.

  • Sign the back of your credit card as soon as you receive it.
  • Keep your CVV number secure. Never give it out unless absolutely necessary—and if you fully trust the person.
  • Review each billing statement to ensure there are no transactions you don’t recognize or didn’t authorize. If there are, contact your financial institution immediately and consider freezing your credit.
Credit card security precautions.

Protecting your identity requires constant vigilance—but emerging technology may have the potential to mitigate some of the risk of credit card fraud.

Shifting CVVs: The Future of Credit Card Safety?

Since chip-enabled cards replaced magnetic stripes, in-person credit card fraud has taken a big dip. Crooks are turning toward online and card-not-present methods of fraud. CVV codes are good at combating this type of fraud—but shifting CVVs, also referred to as dynamic CVVs, may be even better.

The technology works by displaying a temporary CVV code on a small battery-powered screen on the back of the card. The code regularly changes after a set interval of time. This helps thwart fraud because by the time a hacker has illegally obtained a shifting CVV code and tried to make a purchase, it will likely have changed.

Despite the security benefits, shifting CVVs haven’t been widely implemented due to high cost, and it remains to be seen if the technology and process can scale. Financial institutions have many measures in place, such as fraud alert, to notify you of potentially suspicious activity.

If you suspect you’ve been a victim of identity theft, call your credit card company, change your passwords and notify any credit bureaus and law enforcement agencies. By regularly checking your credit card statements, being careful about who you give your information to and being vigilant when making purchases, you’ll help do your part in keeping your identity secure.


Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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How Do Credit Card Miles Work?

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Credit card miles are rewards points that help you earn credits toward travel and other purchases. How credit card miles work and whether this type of rewards card might be a good idea for you depends on a few factors, which we’ll cover below.

What Are Credit Card Miles, and How Do They Work?

Credit card miles are similar to credit card points. They’re a reward that you earn by taking certain actions, including making eligible purchases with the card.

Once you earn enough miles, you can redeem them for rewards. They’re called miles because typically these types of rewards credit cards are aligned with an airline or travel service. That usually means the most value comes from redeeming miles for airfare or rewards miles in an airline program.

However, you can often choose to redeem them for other rewards, such as merchandise, hotel and other travel credits or gift cards at a lesser value per point.

How Are Credit Card Miles Different From Frequent Flier Miles?

In some cases, credit card miles and frequent flier miles may be the same thing. If you have an airline-branded card, such as a Delta SkyMiles credit card, your points may be in the form of the airline’s frequent flyer miles. You can redeem those for flights or other rewards within the frequent flyer program.

If you have a non-branded card, then you may earn generic credit card miles. Those may be redeemed for flights with numerous airlines or other rewards, typically via the credit card rewards program’s online portal.

Hotel rewards cards work in a similar manner. If it’s a branded card, you may earn rewards directly via the hotel chain’s membership rewards program.

How Do You Earn Credit Card Miles?

The exact way you earn credit card miles depends on your card. But typically, you can earn by spending with your card to qualify for various rewards.

Use Your Credit Card Often

Rewards cards are designed to promote spending. You usually earn a certain number of miles or points for every dollar you spend on qualified purchases. In some cases, you can earn more by spending with certain retailers or on certain categories.

For example, it’s common for an airline-themed card to reward more for spending in travel categories. You might earn 3x miles or 5x miles for every dollar you spend with a certain airline, for example, and one mile per dollar on all other purchases.

The key to earning a lot of miles is using the card as much as possible for things you would already be buying and then paying the balance off immediately so you don’t owe interest. For example, if you earn two miles per dollar spent at grocery stores, you could use your credit card to cover your grocery shopping each week.

If you spend $200 a week, that’s roughly 1,600 miles earned per month just for doing grocery shopping you already do.

Take Advantage of Sign-Up Bonuses

Many rewards cards come with sign-up bonuses, and this is a great way to earn a lot of credit card miles right from the start. Typically, the bonus requires you to spend a certain amount of money when you first open the card.

For example, you might earn 50,000 miles if you spend $5,000 in the first three months as an account holder. That sounds like a lot, but it’s often achievable just by using the credit card to cover all normal expenses, such as fuel, groceries and even utility bills. Just make sure you’re paying off the card balance regularly so you don’t end up with a high utilization rate and expensive interest.

Refer Your Friends

Some credit card rewards programs offer extra miles if you refer friends. If your friend applies for the card using your referral code and is approved, then you may be awarded extra credit card miles.

How Much Are Credit Card Miles Worth?

The value of credit card miles varies, but typically they’re worth about one cent. That means if a flight costs $400, you need 40,000 miles to cover it. In some cases, you may be able to raise the value of your miles by redeeming them through a select online portal or via certain airlines.

Redeeming Your Miles

Follow the general steps below, as well as any unique instructions from your credit card company or rewards program, to redeem miles.

Check Your Balance

First, find out how many miles or points you have. This is typically listed on your last statement, but most credit cards support online account access where you can get up-to-date information about your points. You can also call your credit card company or rewards customer service line to find out.

Understand the Limitations

Before you plan on using miles to pay for travel, look at the fine print to understand restrictions. Some rewards programs have blackout dates, which means you might not be able to use miles to pay for airfare during peak times. Others require mile minimums, which means you need a certain amount of miles to redeem to cover part or all of your airfare.

And miles do expire, so make sure you keep track of when you earned the miles and when they will expire so you can redeem them beforehand.

Have a Flexible Schedule

Being flexible about when exactly you travel can also help you get the most out of credit card miles. For example, in some cases you can save hundreds on airfare by leaving a day earlier or later than planned. That means your miles can stretch further to cover more trips or tickets.

Choosing the Best Card for You

Earning and using credit card miles helps you boost your spending power. With the right credit card, you’re getting more than your original purchase when you buy things. But you do need to stick to recommended credit card use, such as paying off your bill every month and keeping your balance as low as possible.

Otherwise, you could end up paying high interest rates or driving down your credit score, and the miles you might earn in the process are not valuable enough to make up for those costs.

Which card you should get depends on your personal needs and preferences. Popular options include the Chase Sapphire Preferred Card, the Bank of America Travel Rewards card and the Capital One Venture Rewards card. These are unbranded cards that let you earn general miles.

If you fly regularly with a certain airline, you might be able to maximize value from a branded airline rewards card. Most rewards credit cards do require good or excellent credit. Check your credit before you apply so you know what cards you might qualify for.

And if you find anything inaccurate on your credit report that could be dragging down your score, reach out to Lexington Law for information on how we can help you dispute errors on your credit.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Subsidized vs. Unsubsidized Loans – Lexington Law

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

The federal direct loan program offers subsidized and unsubsidized loans to college students. A federal direct subsidized loan is a loan where the government pays the interest while the student is in school. A federal direct unsubsidized loan is one in which the student is responsible for paying all interest, receiving no additional federal aid.

What Is the Difference Between Subsidized and Unsubsidized Student Loans?

The main differences between federal direct subsidized and unsubsidized loans are the qualification criteria, the maximum limits and how the loan interest works.

A chart displaying the differences between subsidized and unsubsidized student loans.

Loan Qualifications

Subsidized: To qualify for a subsidized loan, you must be an undergraduate student who can demonstrate financial need based on the information you submit through the Free Application for Federal Student Aid (“FAFSA”).

Unsubsidized: Unsubsidized loans are available to both undergraduate and graduate students, and there is no requirement to demonstrate financial need.

Maximum Loan Limits

Subsidized: Your school will determine exactly how much you can borrow each year, but there are federal limits. These limits are based on what year of school you are in and whether you file as a dependent or an independent. Subsidized loan limits tend to be lower than unsubsidized limits. The aggregate limit for an independent student with subsidized loans is $23,000.

Unsubsidized: Unsubsidized loan limits tend to be higher than subsidized loan limits. The aggregate limit for an independent student with unsubsidized loans is $34,500.

How Interest Accrues

Subsidized: The U.S. Department of Education pays the interest for subsidized loans as long as the student is enrolled in school at least half-time. They will also pay the interest during your grace period—defined as the first six months after leaving school—and any period of deferment. This means that the amount of the loan will not grow once the student graduates, since the government has been paying the interest.

Unsubsidized: Whether you’re an undergraduate or a graduate student, you’re responsible for paying all of the interest during the entire life of your unsubsidized loan.

What Are the Similarities Between Subsidized and Unsubsidized Student Loans?

When it comes to interest rates, fees and the “maximum eligibility period”—the amount of time you’re able to take out loans—subsidized and unsubsidized loans are virtually the same.

Fees

On top of interest, you can expect to pay a small fee for both types of loans. This is approximately 1.06 percent of your total loan amount, and it is deducted from each loan disbursement. 

Both subsidized and unsubsidized student loans have a fee of 1.06% of the total loan amount.

Undergraduate Interest Rates

The interest rates for both subsidized and unsubsidized loans for undergraduate students are the same. Currently, the rate is at 2.75 percent for loans first disbursed from July 1st, 2020, to June 31st, 2021. The one exception is for direct unsubsidized loans for graduate students, which have an interest rate of 4.30 percent. 

Maximum Eligibility Period

For both loan types, the time in which you’re eligible for your loans is equal to 150 percent of the time of your program. For undergraduates pursuing a four-year bachelor’s degree, this means they will be eligible for their loans for six years. Those pursuing a two-year associate’s degree will be eligible for three years. This ensures that students can still receive loans even if they’re unable or choose not to graduate within the program’s time frame. 

How to Apply for Subsidized and Unsubsidized Loans

Once you’re ready to apply for a federal direct loan, fill out the FAFSA. Your school will send you a detailed report of what student aid you’re eligible for. Any grants or scholarships are free money, so make sure to accept them. They’ll also decide which loans you’re eligible for, the amount you can borrow each year and what loan type you can get—subsidized or unsubsidized. 

No matter what type of student loan you go for, it’s important to understand how they affect your credit so that you can set yourself up for financial success after graduation. With responsible, on-time payments, you’ll be well on your way to healthy credit for life.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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