Types of Mortgages

Well you might have heard about mortgages, and might even know what they are, but do you know that there different types? I know, I know, shouldnt there only be one? But hey, some people make differences in different things to account for the difference in different people.

So heres a quick rundown on the types of mortgages that youll likely encounter when you go off to find one.

Fixed rate mortgage
This type has an interest rate that never changes over the whole term. If you have a 10 percent loan that shows that you must pay $2,769 a month, then for the next 20-30 years, youll still be paying $2,769 a month, depending on the term (length) of your mortgage. But it doesnt mean what you pay will not change, the insurance and tax amounts might change in time.

Adjustable rate Mortgage
For Adjustable rate mortgage (ARM), interest rates are influenced by changing market and economic drifts. If you dont expect to be in your home for a long period of time, this will be the type to get. Adjustable rate mortgages, have initial interests that are at least two to three percent points lower than normal fixed rate types, however, these rates are subject to change and may or may not increase as time passes.

Interest change for this type of mortgage alters in terms of the conditions set by the loan. There is a certain period of time when your interest rate will not change. You can get a six-month, or a two year term. There are numbers included in adjustable rate mortgages; you may see numbers like 3/3 or 4/2 or 5/1. These numbers, for example 5/1, only mean that for the first five years, your interest rate will not change, and then it would adjust every year starting on the sixth year.

Balloon Mortgages
Balloon mortgages have initial interest rates that are relatively lower than fixed rate mortgages, it keeps this low rate for five to seven years and then on the final year, you are required to pay the entire sum of the debt, which is called the balloon payment.

This is also a good type of mortgage for those who do not intend to stay in their home for a long period of time. If you plan to sell your home before the balloon payment is due, then this is a good deal for you.


Government Loans
The federal Housing Administration (FHA) loan and the Veterans Administration (VA) Loan and Rural Housing Service (RHS) loans helps lower mortgage costs by, not making the load itself, but by insuring that the loan gets paid. The FHA and the VA, makes lenders willing to loan to someone who might not exactly fit their requirements. They offer more lenient qualifications so that more may be qualified or loans, while RHS loans offer low interest mortgages for those who live in the rural areas.

Reverse Mortgages

These types of mortgages provide you money as long as you live n your home. These are for people ages 62 and up who own their home and need a source of income. It is against equity so in short, youre selling exchanging your equity for cash. These types of loans however, have interest charges that tend to be higher than normal types, so be careful.

Now youre acquainted with the types of mortgages, try to choose something that is applicable to you. The time youll be staying in your home is essential, as well as the amount of cash you can cough up for down payment. But remember, mortgages must help you buy a home, not help you get buried in debt, so choose wisely.