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Fixed Rate Mortgages
These are the most popular type of mortgage loan. As their name implies, with these mortgages the interest rate of your loan remains the same for the entire life of your mortgage. Your monthly payments will stay the same over the life of your loan.
Whatever the rate was at the time of your closing will be the rate you have when you make your final payment some years down the road. You have the comfort of knowing what your payment will be each payment period and the security of knowing that whatever happens in the economy, your interest rates and the principal payment will remain the same.
Fixed Rate Mortage terms are usually for 15 or 30 years.
Adjustable Rate Mortgages (ARMs)
Adjustable Rate Mortgages (ARMs) offer your flexibility and will usually save you money over a fixed rate mortgage in the beginning of your loan period. As a general rule, an ARM loan may be an option to consider if you plan on refinancing or selling your home early in the loan term. The rate is tied to a market index and as the rate changes your payments will also change.
There are scheduled adjustment periods throughout the term of your loan, at which point your rate will change, either up or down. While your payments are tied to the index rate, mortgage "rate caps" will limit the amount your mortgage payments can go up or down over the life of your loan. These rate caps offer you security from very large increases in interest rates.
Balloon Mortgages
Balloon loans are options for home buyers may want a loan with less of a term than a typical fixed rate mortgage of 15 or 30 years. The balloon loan (usually) has payments based on a 30 year term, yet the loan mature in just five or seven years. At the end of that fixed period a final balloon payment becomes due.
An extension clause is available for qualified borrowers who want to keep the loan after the balloon period. The advantage of Balloon Mortgage loans include an initial rate that is lower than for a normal fixed rate mortgage. At the same time, the borrower still gets the protection of a fixed rate product.
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