There are 4 types of mortgages that are available, notwithstanding the sub-prime mortgage crisis and its affect on homeowners.
Fixed Rate Mortgage
This is a mortgage in which monthly payments remain the same throughout the entire term of the loan. Note that there are two types of fixed rate mortgages: 15-year and 30-year. With a thiry-year mortgage, borrowers generally receive lower monthly payments even though their rates are higher. People can buy larger houses or keep their payments on smaller homes affordable as a result.
Fifteen-year mortgages, on the other hand, help buyers own their homes sooner. Even though their payments are larger, they build equity faster because more of each payment goes toward principal rather than interest. The lower interest rate and shortened term make the loans cheaper by lowering the overall interest bill.
Adjustable Rate Mortgages
Unlike the fixed rate mortgage, the Ajustable Rate Mortage (ARM) rate changes based on the market.
A balloon mortgage has a payment schedule similar to that of a thirty-year fixed rate loan, although the term of the balloon loan is shorter, most often spanning five to seven years. At the end of the loan term, the outstanding balance must be paid in one lump sum, either out of pocket or by refinancing the home.
Interest Only Mortgage
With an interest only mortgage, the homeowner is allowed to pay the interest for a specific period of time on the loan before the principle is paid. After the time expires, the payments increase to include the principle. Note that this may not be a prudent way of paying a mortgage since higher payments overall will arise.
Finding the right mortgage for you requires patience. Avoid predatory lenders who offer you a mortgage that seems too good to be true. Research only certified lenders so that you can compare and contrast the different mortgage types before you sign on the dotted line.