QWhat Are The Basic Types Of Mortgages?
AThere are two basic types of mortgages: Fixed interest rate with fixed monthly payments: Common fixed-rate mortgages include 30-year, 15-year, and balloon repayment terms. The 30-year mortgage usually offers the lowest monthly payments, with a fixed monthly payment schedule. The 15-year fixed-rate mortgage enables you to own your home in half the time and for less than half the total interest costs of a 30-year loan. These loans, however, often require higher monthly payments. Balloon mortgages are like a 30-year fixed loan except that at the end of five, seven, or ten years (the "balloon term"), the loan becomes due and payable. Monthly payments are identical to a 30 year fixed loan, however when the loan matures (at the end of the "balloon term"), you must pay it off or refinance. Balloon loans are best suited for people who know they will sell or refinance their home before the loan matures. The benefit is that the interest rate is typically one-half of one percent lower. Adjustable (ARM) with variable rates and changing monthly payments: Mortgages with changing interest rates and/or monthly payments exist in many forms. The adjustable rate mortgage (ARM) is the most common. Initially the ARM usually offers interest rates and monthly payments that are initially lower than fixed-rate mortgages. However, payments and rates can, and often do, fluctuate according to changes in a pre-determined "index" commonly lined to the rate of return on U.S. Government Treasury bills. Some adjustable loans contain a provision permitting you to convert later to a fixed-rate loan and some carry a fixed-interest rate for a number of years, often seven, before adjusting to a new interest rate for the remainder of the loan. However, there are many variations of these plans, such as; "buydowns","discounted" or "bi-weekly mortgages", on the market and you should shop carefully for the mortgage that suits your needs.