Types of Mortgage Loans

If you are searching for a mortgage for a new home, then you need to know about the many different kinds of mortgages that are available to you. There are basically nine different types of mortgages to choose from.

  • A fixed rate mortgage keeps the same level of interest throughout the duration of the loan. This is generally the best type of mortgage for someone who needs to know what the amount of the mortgage will be each month.
  • A one year adjustable rate mortgage or ARM has an interest rate that will change each year based on current market indexes.
  • A 10/1 year ARM has a fixed interest rate for the first ten years, but on the eleventh year the interest rate changes every year.
  • A balloon mortgage is one where at the end of the loan term you have a balloon payment to pay off the remainder of the debt. This can be a potentially large payment.
  • A 7/1 year ARM is the same as a 10/1 year ARM except that the interest rate changes on the eighth year instead of the eleventh year.
  • The 30 due in 7 mortgage has a stable interest rate and payment for seven years and then on the eighth year the interest rate resets to whatever the current interest rate is.
  • The 30 due in 5 mortgage is the same as the 30 due in 7 except that the interest rate resets in five years instead of eight.
  • 5/5 and 3/3 ARMS These mortgages have steady payments and interest rates for either five or three years and then the interest rate adjusts every five or three years for the duration of the loan.
  • 5/1 and 3/1 ARMS This type of mortgage has a steady interest rate and payment for the first five or three years and then interest rates will change to the current market rates every year.

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