What Type of Loan is That

There are pros and cons to each type of home loan that is offered, and they all evolve around
your finances -- the money you have and the money you need to borrow to buy a home.
A loan covers the gap between what you have and what you need.

The major home loans are fixed-rate and adjustable. A fixed-rate mortgage has an interest rate that will never change, no matter what the economy does. An adjustable-rate mortgage (ARM) has
an interest rate that is adjusted periodically during the life of the loan.
An adjustable-rate can also be called a variable rate or ARM.

When you own a fixed-rate mortgage loan, you have a guarantee that the interest rate will never change, but you will pay a premium for this with a higher interest rate. A mortgage lender takes
on a certain amount of risk when a fixed-rate is granted because if the prime interest
rate goes up, the lender pays the difference - not you. That is why the interest rate
is always higher than an adjustable-rate. During the adjustable phase, your monthly
payments can go up or down depending on the average interest rates. Unfortunately,
they rarely go down and frequently go up.

A balloon loan or "reset mortgage" starts off with a fixed rate for a certain number of years, and the interest rates are as low as an adjustable rate mortgage. But, the initial fixed-rate is seven to ten years,
and when that time is up, you must pay off the loan's remaining balance in full.
There is usually an opportunity to refinance before the pay off, but there is
no guarantee what the interest rate will be.