What are Types of Mortgage Loans?
There are a variety of mortgage loans that best fit the financial status of various groups of people. By knowing them, you can easily select the best plan that fits your financial condition. Types of Mortgage Loans The two major types of mortgage loans include the following: 1. The fixed rate. This mortgage type is characterised by fixed interest rates that do not change throughout the loan period. The interest rates remain unaffected irrespective of market fluctuations. You will save money, if the interest rates increase over a period of time. The only drawback with this loan type is you will be paying more amounts, if interest rates fall. 2. Adjustable rate. The drawback seen in fixed type mortgage loans can be overcome by choosing an adjustable rate mortgage plan. The interest rates remain fixed during the initial period of the loan. This initial period depends on the type of the loan. For example, if you choose a 5/1 ARM plan, the interest rates remain fixed for an initial period of five years. After which, the interest rates will be adjusted every year. This is the best type of loan period for home owners who wish to remain in the house for only a short period of time. In addition to the above two types, there is a third type named the balloon loan. In this type, the interest rates remain fixed for a certain period of time. After this period, you have to either refinance the loan amount or repay the remaining in one single payment.