Different Types of Mortgages You Should Know About

Variable Rate Mortgage: Although used as another name for ARM a variable rate mortgage is one that will have adjusting rates throughout the term of the loan. There will be a set schedule according to which the mortgage rates will adjust. And there could be a cap on the maximum interest that you might be required to pay.

Hybrid ARMs: These are a combination of ARM and FRM, wherein there is a long period of 3 to 5 years of fixed interest, which will be followed by floating interest rates. The most common hybrid ARMs are 3/1 (three years of fixed interest followed by floating interest rates) and 5/1 (five years of the introductory period followed by floating interest rates)

Option ARM: This is the best type of mortgage to go for if you need to borrow a loan that is larger than what you actually qualify for. Here you have four types of monthly payment options – one with a set minimum payment, one with an interest-only payment, one with a 15-year amortizing payment, and one with a 30-year amortizing payment. You can choose whatever seems best to you.

Balloon Mortgage

Balloon mortgages are short-termed mortgages that include very low monthly payments that include interest only. However, the entire balance would become due at the end of the term.

Reverse Mortgage

This is a type of mortgage for senior homeowners who wish to borrow money against their home’s equity to lead a comfortable retired life. It can be withdrawn as a lump sum, a revolving line of credit, or inset monthly payments. It comes up for payment only if the borrower (and the co-borrower) dies or moves out of the home permanently.

Combination Mortgage

In case you cannot afford the 20 percent down payment of your home but still want to avoid PMI, this is the type of mortgage you should go for. Here you take out one loan for 80 percent of the home value and another loan for the remaining 20 percent of the home value. The first loan will have a lower fixed interest rate while the second one will usually have a higher variable interest rate.

It is always better to check for the availability of different types of mortgages before deciding on a mortgage lender who might come to you through mortgage leads. Check what you qualify for before you make your final decision.

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