Different Types of Mortgage Financing

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Types of Mortgage Financing


Fixed Rate Loans:  The interest rate and payments remain constant over the life of the loan.  The most common terms of these loans are 15 and 30 years.


Fixed Rate Ballon Loans:  The interest rate and payments are normally based on a 30 year amortization and will remain the same until the loan is due, usually 5 or 7 years.  At that time, the entire unpaid balance is due and payable.  This option usually offers you the lowest rate as the lender’s commitment is for a shorter term.


Adjustable Rate (ARM) Loans:  This is a mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index.  Adjustments may occur at different intervals, depending on the loan program.  Some adjust yearly and others may stay fixed for a period of 3, 5 or 7 years and then adjust yearly.  ARMs usually have yearly and lifetime caps to limit the amount the interest rate can increase during the loan.  ARMs will have an initial interest rate lower than fixed rates but will adjust upward (unless there is a strong downward rate movement) after the initial adjustment period.  They may be a good choice if you feel you will not own the home for an extended length of time.



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