Types of Mortgages Explained

Did you know there are many different types of mortgages? We list 16 of the most common mortgage options, along with the pros and cons of each.When it comes to buying a home, you may think that your only option is a 30-year, fixed rate mortgage. But there are plenty of options out there.

Fixed Rate Mortgage

Fixed rate mortgages are the most popular option. A set interest rates mean predictable monthly payments. These payments are spread over the length of a term, which ranges from 15 to 30 years, typically. Currently, shorter loan terms are becoming more popular

Adjustable Rate (ARM) Mortgage

As you might guess, the interest rate on an adjustable rate mortgage fluctuates. Exactly how the interest rate changes depends largely on the type of loan you get.

Balloon Mortgage

Balloon mortgages typically have a short term, often around 10 years. For most of the mortgage term, a balloon mortgage has a very low payment, sometimes interest only. But at the end of the term, the full balance is due immediately. This can be a risky proposition for most borrowers.

Interest-Only Mortgage

Reverse Mortgage

This type of mortgage is for seniors only. A reverse mortgage gives homeowners access to their home’s equity in a loan that can be withdrawn in a lump sum, with set monthly payments, or as a revolving line of credit.

Government-Backed Mortgage

In an effort to encourage home-ownership, the federal government offers some loans that are backed by government entities. This means that if a borrower defaults on the loan, the government will cover the lender’s losses

Second Mortgage

In an effort to encourage home-ownership, the federal government offers some loans that are backed by government entities. This means that if a borrower defaults on the loan, the government will cover the lender’s losses

Combination Mortgage

Combination mortgages are helpful for avoiding Private Mortgage Insurance (PMI) if you can’t put 20 percent down on a home. Usually, you take out one loan for 80 percent of the home’s value and another for 20 percent of the home’s value.

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