What type of mortgage do you want?There are really only four different types of mortgages. But there are hundreds of variations to each one. Once you have reviewed the type of mortgage you want below, you can start looking at what kind of variation your want to go with it.
Fixed Rate Mortgages This type of mortgage has a fixed interest rate. Meaning you will pay the same amount every month until the loan is paid off. Most people prefer this loan over any other.
Fixed rate mortgages have pay back periods of 10, 15, 20, 25, and 30 years.
The interest rates on these types of loans are the highest of all the types of home loans.
Adjustable Rate Mortgage (ARM) This type of home loan has a variable interest rate. Meaning the interest rate can change on a monthly or yearly basis. These types of loans have caps and floors. Meaning there are maximum and minimums that they can rise and fall.
All ARM’s are tied to an index. The index is what causes the interest rate to rise and fall. The index can be just about anything with the most common index being the LIBOR. Other index’s might include the Cost of Funds Index, 1 year treasury, and 5 year Treasury.
ARM’s also have what is called the margin. This is added to the index to come up with the interest rate. So for example if the margin was 4.75% and the index was 1.25% your interest rate would be 6%.
These loans offer the lowest interest rates of all. Interest rates could be up to 3% lower than a 30 year fixed rate mortgage.
Hybrid This type of mortgage is a mix between the fixed rate mortgage and an adjustable rate mortgage. They have fixed interest rates that then turn to adjustable rates after a certain number of years. You can have the fixed period anywhere from 6 months up to 10 years.
For example:
2/28 Fixed for 2 years and then turns adjustable 3/27 Fixed for 3 years and then turns adjustable 5/25 Fixed for 5 years and then turns adjustable 10/20 Fixed for 10 years and then turns adjustable
These mortgage loan type offers great interest rates as well. Interest rates could be up to 2% lower than a 30 year fixed rate mortgage.
Balloon Mortgage This is a rather different type of mortgage. These commonly have a balloon payment at the end of a certain amount of time. The balloon would require you to either refinance or pay the mortgage in full after the specified period has been reached. However, these days there are other things that can occur.
Many balloon loans have a one time adjustment to the rate. Using a 7 year balloon as an example, here is what happens. After the 7 year period is up the interest rate adjusts to what ever the current 30 year interest rate is plus a ½%.
This mortgage loan type offers low interest rates as well. Interest rates could be up to 1% lower than the 30 year fixed rate mortgage.
Not only will you have many different options with in the four main types of loans. Ranging from length of the loan, interest rates, and the various fixed and adjustable periods. But many times you will also have the option of any of the following:
1 Year ARM
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