Buying a home is a huge decision, and in most cases, it is only made possible by successfully obtaining a mortgage suitable for your financial situation. That said, it is important to know before you look for a mortgage that there are many different types of commonly used mortgages available. Here is an outline of the most common types of mortgages, with some detail to help buyers choose which is best for them.
A fixed rate mortgage is one of the most popular options. This is a mortgage in which the interest rate stays constant for the duration of the loan. These mortgages are typically structured to be paid back in a 15 or 30 year period, although their length may vary.
Adjustable rate mortgages allow the interest rate on the loan to change based on the market interest rate. This can happen about every 6 to 12 months. Many people like this option because it means potential savings, however it is also subject to surprise changes in monthly payments.
Some people may be eligible for government backed mortgages. These include mortgages supported by the Federal Housing Administration for low income families, VA loans for veterans of the United States Military, and US Department of Agriculture loans for designated rural areas.
Interest only mortgages are another option that allow the borrower to only pay the interest on the loan for a given amount of time. A drawback of this option is that the longer the borrower only pays the interest, the larger the payments will be later.
Finally, balloon mortgages is a short term mortgage option in which lower regular payments are made up to a certain date when a final larger payment is due. This is helpful for when you know that you don't want to be consistently tied down to a mortgage for as many years as 20 or 30 years, and are able to come up with a large sum of money at a later but not too distant future.
Remember, this is a general outline of the most common types of mortgages, and does not represent what is available at the mortgage lender you are dealing with. Consult with your mortgage lender to find which of these options they are specifically able to offer you, and remember to take into account your long-term financial status in any decision regarding a mortgage.
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