Comparing the Different Types of Mortgages

Buying a home is the American dream, but few of us have the funds to pay for a home in cash. Instead, most of us end up taking a mortgage to purchase a home. Fortunately, there are multiple types of mortgages available and you can pick one that best suits your requirements and financial situation. Here’s how the different types of mortgages compare.

Fixed-Rate Mortgage

Here, the lender charges a fixed rate of interest, thus offering payment stability. Interest rates, however, may be higher than other types of loans. The borrower will repay the loan by making equal monthly payments over the course of the loan term, which can range from 10 to 40 years.

Adjustable-Rate Mortgage

In the case of an adjustable-rate mortgage, the interest rate can change over the course of the loan term, resulting in varying monthly payments. The interest rate at the start is usually below the market rate but gradually increases during the loan term. This type of loan is a good choice for homeowners who don’t intend to live in their homes for too long.

Balloon Mortgage

Here, the monthly payments are based on a fixed interest rate. It is usually a short-term loan, and the monthly payments may only cover interest payments and the principal would be due in full at the end of the loan term.

Home Equity Loan

This is a mortgage loan that is secured by the borrower’s equity, which is the market value of their home. The loan amount may be paid out as a lump sum or in the form of a line of credit. Typically, these loans have a shorter term, ranging between 5 and 15 years. The interest rates are usually lower than what is charged for traditional mortgages but can be variable or fixed.

Renegotiable Rate Mortgage

In this type of loan, the interest rate and monthly payments stay fixed for several years at a time, but changes can happen. These loans offer more payment stability in comparison to ARMs.

Apart from these mortgages, you should also check if you qualify for a VA loan, USDA loan, or FHA loan.