Different
Types
Of
Mortgages
A
loan
isn't
just
a
loan
when
it
comes
to
mortgages.
Here
are
some
different
types:
Fixed
Rate:
A
specified
fraction
of
the
loan
will
be
owed
to
the
bank
over
the
course
of
the
loan.
The
amount
does
not
change
and
the
monthly
payment
will
be
the
same
over
15
or
30
years.
This
type
of
interest
rate
is
very
popular.
ARM:
This
is
an
adjustable-rate
mortgage.
The
interest
rate
changes
to
mirror
changes
in
the
credit
market.
The
initial
rate
of
an
ARM
is
generally
lower
than
the
rate
available
on
a
fixed-rate
mortgage;
but
remember,
the
rate
may
change
during
the
lifetime
of
the
loan.
Don't
hesitate
to
ask
the
lender
how
one
loan
differs
from
another,
how
the
different
features
of
the
loan
will
affect
the
mortgage,
or
whether
your
chances
to
qualify
would
improve
if
you
made
a
higher
down
payment.
The
first-year
rate
(aka
the
teaser
rate)
is
usually
a
couple
of
percentage
points
below
the
market
rate.
There
is
also
a
cap,
which
is
the
highest
limit
for
the
interest
rate.
For
example
if
your
first-year
rate
is
5
percent,
and
you
have
a
five-point
cap,
then
the
highest
that
your
interest
rate
can
go
is
10
percent.
In
addition,
interest
rates
are
limited
to
an
increase
of
one
or
two
points
a
year.
Thus,
it
is
important
to
know
how
often
the
rates
will
change.
A
type
of
ARM
is
a
Cost
of
Funds
Index
loan.
There
are
no
caps
with
this
loan
and
it
adjusts
monthly.
It
is
the
most
flexible
of
any
of
the
ARM
mortgages
because
it
does
not
have
a
fixed
rate
for
a
particular
period
of
time.
One
advantage
of
the
COFI
loan
is
that
there
is
no
set
payment
each
month.
Another
type
of
ARM
mortgage
is
a
hybrid
loan.
It
is
set
for
1,
3,
5,
7
or
10
years
and
then
switches
to
an
ARM.
This
gives
you
steadiness
for
some
time,
and
then
some
existing
interest
rates.
Two-Step
Loans
These
loans
provide
the
low
rates
of
an
ARM
and
the
stability
of
a
fixed
loan.
They
usually
are
shown
in
a
5/25
or
7/23
form.
You
will
see
that
the
two
numbers
add
up
to
30
in
both
cases.
This
ratio
means
that
in
the
first
five
or
seven
years
your
interest
rate
will
be
fixed,
and
in
the
next
25
or
23
years
the
loan
will
either
become
an
ARM
or
a
fixed
rate
loan.
The
advantage
to
this
is
that
the
initial
interest
rate
is
usually
lower
than
a
standard
30-year
fixed
loan.
Balloon
Loans
These
are
short-term
loans
that
are
treated
as
if
they
are
30-year
loans.
The
term
usually
last
from
three
to
seven
years
and
the
outstanding
funds
are
paid
in
one
mass
sum.
This
loan
has
lower
interest
rates
and,
if
you
will
be
moving
and
selling
at
the
same
time
your
balloon
mortgage
is
due,
it
might
be
a
good
option
for
you.
On
the
other
hand,
if
you
do
plan
on
staying
in
your
house
longer
than
originally
planned,
then
you
will
have
to
pay
off
the
loan
completely
and
also
get
another
loan,
which
can
get
expensive.
For
more
information
about
what
mortgage
is
right
for
you
please
contact
one
of
our
affiliate
members
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