What are the Different Types of Mortgages?

Fixed Rate Mortgage

Fixed Rate Mortgage plans carry a fixed rate of interest throughout the lifespan of the loan, thus providing a convenient way for most homeowners to factor the expenditure into their monthly budget. These mortgages make up 75 percent of all home loans purchased in the United States. The principal and interest changes for each payment, but the total mortgage amount remains static month after month.

Fixed Rate Mortgage Plans

50 Year Fixed Rate Mortgage

A Fixed Rate Mortgage that extends its term to 50 years can be taken up by borrowers who are economically weak. The rate of interest remains fixed through the lifespan of the loan, it is up to the borrower to repay the loan before the 50 year mark.

40 Year Fixed Rate Mortgage

40 year Fixed Rate Mortgage plans have low monthly payments but the longer the term of the loan, the rate of interest is bound to be slightly elevated.

30 Year Fixed Rate Mortgage

Most Mortgages follow the 30 year term, it offers the lowest rates for average borrowers to conservatively budget mortgage repayment. Interest rates are fixed for the life of the loan.

15 Year Fixed Rate Mortgage

Short Fixed Rate Mortgage terms such as the 15 year term should be taken by couples who can contribute towards mortgage repayment by paying twice a month. In such a strategy, one partner can pay the mortgage on the 1st of the month and another can pay the mortgage on the 15th of the month. In addition, making frequent payments towards your mortgage brings down mortgage insurance, and presents an impeccable credit score.

10 Year Fixed Rate Mortgage

The 10 year Fixed Rate Mortgage can be taken up by borrowers with quick repayment capacities, since the lifespan of the loan is short, these mortgages have large monthly payments.

Adjustable Rate Mortgage

Adjustable Rate Mortgages have rates of interest that vary over the years in stages. The rates of interest are rather low and thus attract the attention of prospective homeowners, but a fact established over time is that interest rates on Adjustable Rate Mortgages, while low in today's market, will overtake the rates of interest on Fixed Rate Loans, the longer you hold onto the loan. These loans remain static for a certain number of years and become dynamic and change every year.

Adjustable Rate Mortgage Plans

5/25 Adjustable Rate Mortgage

5/25 Adjustable Rate Mortgage is a popular plan, with the advantage of a borrower abiding by fixed interest rates below the market price for 5 years. The interest rate undergoes a single adjustment in accordance with market rates and remains static for the next 25 years.

5/5 Adjustable Rate Mortgage

5/5 Adjustable Rate Mortgage sustains fixed interest rates for five years, after which interest rates become dynamic during 5 year phases.

10/1 Adjustable Rate Mortgage

10/1 Adjustable Rate Mortgage have fixed interest rates that are much below the market value, for the first 10 years of the plan, after this period ends, the rate changes every year during the 30 year lifespan of the loan.

5/1 Adjustable Rate Mortgage

5/1 Adjustable Rate Mortgage are similar to the 5/5, but interest rates fluctuate every year after the initial 5 year period.

3/1 Adjustable Rate Mortgage

3/1 Adjustable Rate Mortgage is similar to the 3/3, with the sole difference of having interest rates change every year after the initial three year period.

1 Year Adjustable Rate Mortgage

These loans change their rate of interest every year during the 30 year life span of the loan, as an added bonus, interest rates on this loan are lower than fixed rate loans.

Balloon Mortgage

A Balloon Mortgage charges interest and a small portion of the principal as monthly payments. These loans fall under short term loans and the end of the loan comes with the repayment of a large amount of money as balloon payment. This loan is apt for homeowners who want to sell their homes before the balloon payment, some even refinance their homes.

Comparison: Fixed Rate Mortgages and Adjustable Rate Mortgages

Fixed Rate Mortgages and Adjustable Rate Mortgages are the two most popular plans in the Mortgage market. Home loans can also follow the prototype of these two types in coalition formulas, as borrowers might choose to opt for an Adjustable Rate Mortgage during its first phase plan, and then shift into a Fixed Rate Mortgage, if the Adjustable loans rate of interest rises. Federal refinancing plans such as HARP, were created to rescue homes that were underwater due to soaring Adjustable Rate Mortgages. A key lesson from the housing crash was that, despite Fixed Rate Mortgages having higher rates of interest than Adjustable Rate Mortgages, it became a plan that provided maximum insulation during financially unstable times.

Reverse Mortgage

Reverse Mortgages derive their name from lenders paying homeowners money on a monthly basis, instead of the other way around. It helps elderly homeowners cash-in on the equity gathered on their homes without selling their property. It can tide over homeowners who haven't saved effectively for retirement, or just provide some added cushion fund to push that retirement plan to another level. These plans can be from State agencies, private lenders and federal-backed mortgages. Income as a result of Reverse Mortgage is tax-free. The Home Equity Conversion Mortgages is supervised by the Department of Housing and Urban Development.

5/1 Adjustable Rate Mortgage

5/1 Adjustable Rate Mortgage are similar to the 5/5, but interest rates fluctuate every year after the initial 5 year period.

Interest Only Mortgage

Interest Only Mortgages are a great option for young people who want to own a house, but don't have enough money for a mortgage. These loans require the borrower to pay only the interest on the loan for a period ranging from 5 to 7 years, after which the borrower should pay monthly mortgage payments including the principal owed. In addition, when the borrower pays only the interest, it does not change the principal of the loan, while monthly mortgage payment rates increase. Borrowers opting for Interest Only Mortgages can also refinance their homes after the interest repayment period ends.