Types of Mortgage Loans

Learning about the various types of mortgage loans is the first step to owning a home. The two main types of mortgages are the fixed rate mortgage and the adjustable rate mortgage. There are benefits with each type, and the details within the loans will help you determine which mortgage is best for you.

Fixed Rate Mortgages
A fixed rate mortgage has an interest rate that stays the same throughout the life of the loan. Most fixed rate mortgage loans are available in 30-year, 15-year, and 10-year timeframes. There are benefits with this type of mortgage. Budgeting is much easier when you know that the monthly payment will never change, and the loan is protected against inflation should interest rates increase.

Adjustable Rate Mortgages
An adjustable rate mortgage or ARM has an initial fixed rate that lasts for the first one to seven years. At that point, the interest rate will adjust up or down based on the fluctuations of the market. The lender will increase or decrease your monthly payment accordingly. Mortgage loans of this type usually provide a lower interest rate in the beginning, but it is unknown where the interest rate will go in future years. Some adjustable rate mortgages have an interest rate cap that limits how much the interest rate can be increased during a specific timeframe.