Types of Home Mortgages: How to Choose the Right Type
of Home Mortgage for You
Introduction and Overview
There are a dizzying number and variety of home mortgages
on the market today, and finding the right one can take
research and some reading. It’s worth it. When you
get to the closing table, you will know enough about the
industry not to be duped by unscrupulous lenders.
Most Common Type of Home Mortgage Loan
The most common type of home mortgage is the fixed rate
mortgage. This type of mortgage carries consistent payments
and interest rate. This means that because your interest
is an annual rate computed monthly, your ratio of principal
to interest will change with every payment—at first
your payment is mostly interest, but by the end of the term
your payment is mostly principal. Most fixed rate mortgages
are 30 years, but the 15-year term has become a popular
term, and the 40-year mortgage is gaining popularity.
The ARM
The adjustable rate mortgage, another popular choice lately,
is a very complicated loan. While it’s easier to qualify
for a loan with an adjustable rate, not everyone needs it.
The beginning of an ARM is fixed, but for a short time.
In other words, you may pay a lower percentage rate than
on a fixed rate, but this advantage will only last perhaps
a year. Then the rate increases, again perhaps for a period
of time or for the remainder of the loan. It’s recommended
that you research all types of ARMs before committing to
one, and that you make sure you understand the impact on
your payments over time. Some people end up owing more money
than they did in the beginning of the loan (negative amortization).
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