Basic Types of Mortgages

Here are some of the most common mortgage loans, along with information to help you decide which is right for you. 

Fixed-rate loan. If you've found a home you plan to live in for 10 to 30 years, consider a fixed-rate loan. It's predictable and stable since the interest rate is set for the full length of the loan. Because the monthly payment stays the same, planning a budget is easier.

Adjustable-rate loan. An adjustable-rate mortgage (ARM) usually starts with a lower initial interest rate than traditional fixed-rate loans. After a set initial payment period (usually 1, 3, 5, 7 or 10 years), the interest rate may change periodically (usually annually or semiannually) based on market conditions. As the rate changes, your monthly payment changes. ARM loans feature an adjustment "cap" or limitation on how much the interest rate can go up or down. This helps limit excessive changes in your monthly payment. 

Jumbo loans. These are loans for homebuyers who need larger loan amounts.

Loans for first time homebuyers. Often first time homebuyers can take advantage of FHA and VA government loans, as well as other programs based on income or property location. These mortgages sometimes require less income to qualify than traditional loans and may require little or no down payment.

Repayment schedule. Also consider how quickly you'd like to repay your loan -- within 15 years, 20 years, 25 years, 30 years? Do you want to make biweekly mortgage payments? Typically, the sooner you repay the loan, the more you'll save in interest payments. However, the longer you extend the term of your financing, the lower your monthly payments may be. So when choosing a loan term, consider your budget, your long-term spending patterns, your income over the life of the loan and how long you plan to stay in your home.

Not every type of mortgage is ideal for every person or situation. The next step is to determine which loan fits your situation best.  For that, you may need to consult a mortgage professional, an accountant, or your REALTOR.

NOTE:  This information is not intended to be legal advice. You should seek independent advice from trained professionals, for example, a lawyer and/or an accountant, etc., if you believe you need such advice.