There are a number of mortgage loan types that you can choose from today and it is imperative for you to first understand how each of the types work so that you would can be sure that the one you would be deciding to purchase would suit your needs. Here is a guide that you can use to compare the different types of mortgages you can get.
Fixed Rate Mortgages
This type of mortgage is basically a conventional loan wherein the monthly payments and the interest rate would remain fixed for the entire term or duration of the loan. You can fixed rate mortgages that have terms ranging from 10 to 40 years. With this type of loan, the longer the loan term of the mortgage is, the lower the monthly payments would be.
Adjustable Rate Mortgages
ARMs or adjustable rate mortgages are a type of mortgage loan wherein the interest rate and the monthly payments can vary during the term of the loan. Most adjustable rate mortgages come with a cap on their interest rates so that homeowners can be protected from having monthly payments that are too high. This may be a good option, primarily because if the interest rates go down, your monthly payments would also be lower, and because the initial interest rates are usually lower compared to the rates that come with other types of mortgages. Some of the common types of adjustable rate mortgages include CD-indexed ARMs, treasury-indexed ARMs and initial fixed period ARMs.
Balloon Mortgages
This is a type of short term mortgage which often comes with a term of just 5, 7 or 10 years. The advantage of getting this type of mortgage is that it usually comes with low interest rates. Basically, only a small portion of what has been borrowed is paid off over the term of the loan. As the loan term ends, the borrower would need to pay the balance that is remaining in a lump sum or refinance the home through getting another mortgage.