Are you have trouble picking out which type of mortgage best suits your family? We know it can be a difficult process, especially if you're unfamiliar with mortgage types. Fortunately, we're here to help with this informative guide to mortgage types! Here you'll find everything you need to know about the various types of mortgages out there!
Perhaps the most common type of mortgage is the adjustable rate mortgage or ARM. They are probably the most prevalent among new homebuyers because they are fairly easy to get approved for, at least compared to fixed rate mortgages. Sadly, many new homebuyers are unaware of the risks associated with an adjustable rate mortgage. The rates of most ARM's tend to increase greatly over the life of the loan, which means larger monthly payments. If the buyer is unprepared to deal with the rising rates, it can easily lead them down the path to foreclosure.
Although they may prove useful in specific situations, balloon mortgages aren't for most homebuyers. They offer an attractive interest rate, but in many ways, it is only a mirage. Balloon mortgages are unique in that they usually have the shortest maturity date, which means they have to be paid off fairly quickly. A typical balloon mortgage lasts only 3-15 years, after which the entire balance must be paid back. As you could guess, few people are prepared to pay off their whole mortgage loan in under 1- years and failing to do so could lead to foreclosure.
The fixed rate mortgage, sometimes referred to as FRM, is generally the safest type available. Like the name implies, the interest rate on an FRM will never change over time. That means you'll have same monthly payments on your mortgage from the time you take it out, till the day it's completely paid off. Of course, that kind of security does come at a price. Many fixed rate mortgages have higher interest rates than those of adjustable rate mortgages, at least initially. With the way ARM rates tend to increase though, it's probably safe to say that a fixed rate mortgage will cost you less money over the life of the loan.
Over the last couple years, different forms of hybrid mortgages have become increasingly popular. They typically work by have fixed rate period before converting into an adjustable rate mortgage. Common examples include mortgages that have terms such as 10/20, in which the first 10 years have a fixed rate and the final 20 years have an adjustable rate. While a hybrid mortgage is probably a safer bet than an ARM, it's still important that the buyer is aware that their rates will likely increase once the fixed period ends.