Mortgage Loans Variety

Mortgage Loans Variety

Nowadays finding a suitable mortgage plan can be rather hard and confusing because of the great amount of different loan types available on the market. Nevertheless, most of them are just variations of fixed and adjustable rate mortgages. Most of them are available in 15 and 30-year terms and are structured to meet different financial requirements of different people. The thing you should consider first when selecting a mortgage type is your long-term plans. Use the following information to make the right decision.

Fixed Rate Mortgage

Applying for a fixed rate mortgage is reasonable only if you plan to stay in your home for at least 7 years. Interest rate of this loan type is fixed for the whole period of the loan, which is usually 15, 20 or 30 years. Usually, the shorter the term, the lower the interest rate is. Both the principal and the interest are paid off at the end of the loan term.

Adjustable Rate Mortgage

This type of the loan is good if you plan to live in your house only for a short period of time. The rate is usually low at the beginning but after a certain period can increase depending on treasury bills, prime rates, etc. There is usually a cap to prevent the rate from fierce increasing, too. If you decide to stay in your home for a longer period, you probably should refinance for a fixed rate loan in order to avoid any future rate increases.

Combined Fixed and Adjustable

This loan type is also suitable for people who plan to stay in their homes only for a certain period. It can begin as a fixed rate home mortgage loan with low interest rate and payments, and then the loan adjust. Like the adjustable rate, the amount of the adjustment is tied to an index that can go up or down. This loan is sometimes called a two-step or convertible ARM. You have to be very careful with this type of mortgage loan since it usually goes up after a certain period of time; above that, if you will need to convert after a certain period of time it will cost you money. Make sure you understand all details on it.


Balloons are interest-only loans. This means that during the life of the loan you only make payments towards the interest and never towards the principal, so you have to pay the whole amount at the end of the loan’s life. The worst thing about this loan is that you don’t build up your home equity with it; that’s why few people ever keep this loan for the whole term.

© 2010, Jericho Mortgage — Mortgage Loans Variety