Different Types of Mortgages


Fixed-Rate Mortgage

A Fixed-Rate Mortgage is a type of home loan where the interest rate remains constant throughout the life of the loan. This means that the monthly principal and interest payments stay the same, providing predictability and stability for the borrower.

Key Features:
  • Interest Rate: Remains fixed for the entire term.
  • Monthly Payments: Stay consistent, making budgeting easier.
  • Terms: Typically offered in 15, 20, or 30-year terms.
  • Best For: Borrowers who prefer stable, predictable payments and plan to stay in their home for a long time.
Adjustable-Rate Mortgage (ARM)

An Adjustable-Rate Mortgage (ARM) is a home loan where the interest rate can change periodically based on an index which reflects the cost to the lender of borrowing on the credit markets. This means that monthly payments can go up or down.

Key Features:
  • Initial Fixed Period: Often starts with a lower fixed rate for a set period (e.g., 5, 7, or 10 years).
  • Adjustment Period: After the initial period, the rate adjusts at specified intervals (e.g., annually).
  • Interest Rate Caps: Limits on how much the interest rate can increase per adjustment period and over the life of the loan.
  • Best For: Borrowers who expect their income to increase in the future or plan to sell or refinance before the adjustable period begins.

These two types of mortgages cater to different financial situations and preferences, offering choices to borrowers based on their long-term plans and risk tolerance.



More Helpful Articles