Mortgage Types
There are different types available currently. The most common mortgage types are as below.
15 year or 30 year Fixed Rate Mortgage
This is the most common mortgage types where the interest rate and the installment amount is the same for the term of the mortgage. It is preferred by people who would have steady income and plan to live in the house for a long time. With the 15 year term you can build the equity faster since the monthly payments are higher then the 30 year term mortgage. You can use the Fix Rate Calculator or Amortization Table to determine your monthly payment amount and your interest and principle breakout hroughout the mortgage term.
Adjustable Rate Mortgage(ARM)
ARM is chosen since it can have lower interest rate and hence lower monthly payments initially. The rate of interest is then adjusted regularly after a time period depending on the interest rate index, which could be then significantly high, increasing the monthly payments. If you are planning to live in the house for a shorter duration or are ready for higher monthly payments by higher income in the coming period then ARM could be the opted for. You can also refinance the mortgage if the adjusted interested rate is higher.
Balloon Mortgage
The normal terms of Balloon mortgage are 5 years or 7 years. For these number of years the mortgage has low and fixed monthly payments. But there is a large remaining principle amount to be paid at the end of the term. You can now opt for refinancing the mortgage.Again this type of mortgage is good if you do not plan to live in the house for a long time. Else you must be ready for a higher interest rate or monthly payment at the end of the balloon mortgage. You can use the Balloon Mortgage Calculator to get an idea of the possible payment structure.
2/28 or 3/27 ARM
These mortgages will have a fix rate and the monthly payments for the initial 2 or 3 years The rate applied for this period is higher then the index for this period and then will keep adjsting for the next 28 or 27 years as a ARM. These mortgages are good for people not having good credit score at the time of the mortgage, but can now improve upon the credit score in next 2 or 3 years so that they can refinance the mortgage for a better rate.