Types of Home Mortgage Loans

Fixed Rate Mortgages

• Rate never changes
• Payment never changes
• Loan is paid off at the end of the term
• Traditional mortgage

A fixed rate mortgage is the traditional mortgage that most people have known over the last 50 years.  Fixed rate mortgages will have the same interest rate and the same payment for the entire life of the loan.  The most common fixed rate mortgages are 30 year fixed, 15 year fixed and 10 year fixed. 

Adjustable Rate Mortgages

• Usually fixed for a certain period of time
• Interest rate can adjust monthly
• Payment can adjust monthly
• Typically based on an index
• Interest only option

Adjustable rate mortgages generally have a low interest rate for in introductory period.  The introductory period can vary from one month to 10 years.  An adjustable rate mortgage is beneficial to a borrower that does not plan on staying in their home for an extended period of time because they can achieve a lower interest rate than a fixed rate mortgage.  Adjustable rate mortgages are also beneficial when interest rates are generally high, a borrower can get a lower rate and refinance their home into a fixed rate when rates are lower.  3/1 ARM, 5/1 ARM and 7/1 ARM’s are the most common adjustable rate mortgages today.  Many ARM’s are available with an interest only option which helps to further reduce the monthly payment, however there is no principal being paid to reduce the loan amount each month.