Mortgage Loan Types

fixed rate mortgages

Fixed rate mortgages are traditional loans that have a fixed interest rate over the life of the loan (typically 30 or 15 years). With these loans, your monthly payment for interest and principal never changes, however your escrow expenses (such as property taxes and insurance) will change from year to year). Down payments required on these loans can be as low as 5% or less in some cases. If you want predictable payments over the life of your loan and don't mind paying a slightly higher interest rate for this security, the fixed rate mortgage may be the best option for you.

adjustable rate mortgages (ARM)

Adjustable rate mortgages typically start at a lower interest rate than their fixed rate counterparts, but interest rates and payments fluctuate depending on market interest rates. A typical ARM is adjusted annually or after a given number of years (i.e. a 5yr ARM would be fixed for the first 5 years but could subsequently fluctuate). Interest rate increases are usually capped for any given year and for the life of the loan. For example, a typical ARM might include an annual cap of two percentage points and a cap over the life of the loan of six percentage points. These loans are popular with people who expect rising income in the near future, or people who don't plan to stay in their home long-term.

Balloon Mortgage

Balloon mortgages are another mortgage instrument that is popular for people who know they won't be staying in their home long-term. If you know you'll be moving in five to seven years, and you'd like a lower interest rate but are uncomfortable with an adjustable rate, the balloon mortgage may be for you. These loans often have a somewhat lower interest rate than a conventional 30-year mortgage, but the loan is due in five to seven years. If you're still in the house at the end of the term, you'll have to find another mortgage in order to pay off the first one.

Jumbo Mortgage Loan

Jumbo loans are just what their name implies: a larger than average loan. Most lenders follow the Fannie Mae or Freddie Mac federal guidelines for loans, which limit the amount you can borrow to $333,700. If you need to borrow more than this, you should look for a Jumbo loan.