| There are three major types of home mortgages - | | | | when interest rates are high. Typically, lenders offer a |
| fixed-rate mortgages, adjustable rate mortgages and | | | | low, introductory interest rate followed by an interest |
| alternative or combination mortgages. Each of these | | | | rate that's based on the market average, or slightly |
| has its benefits and disadvantages along with different | | | | above the prime rate. In this scenario, as interest rates |
| types of lending and interest setups within each major | | | | rise and fall, so do your mortgage payments. |
| type. To learn more about the pros and cons of the | | | | Bear in mind, though, that the key risk with an |
| different types of home mortgages, keep reading. | | | | adjustable rate mortgage is if the general real estate |
| Fixed Rate Mortgage | | | | market rate rises, one's monthly mortgage payment |
| A fixed rate mortgage is your standard, typical, | | | | (on the interest) will rise as well. |
| mortgage. Its main advantage is that your housing | | | | If you're part of a family that expects its income to rise |
| costs are predictable - you know how much you can | | | | over the years, are only planning to own your home |
| expect to pay every month, when your mortgage will | | | | for a short period of time, anticipate stable mortgage |
| be paid off and exactly how much it will cost you in | | | | interest rates in the foreseeable future, or simply want |
| interest payments. | | | | to get into the housing market but the interest rates |
| Typically, a fixed rate mortgage comes in a 30-year | | | | are simply too high to lock in with a fixed rate |
| term. However, homeowners who are refinancing their | | | | mortgage, than an adjustable rate mortgage is for you. |
| homes have increasingly been tapping into shorter | | | | Combination Mortgages |
| 15-year terms, while first time home buyers sometimes | | | | It is possible to obtain mortgages that change their |
| consider terms as long as 40 years in order to pay | | | | type as they mature. For example, the Super Seven |
| less on their monthly debt. | | | | or Two-Step mortgage gives homeowners a low, |
| Another popular type of fixed-rate mortgage is the | | | | predictable interest rate for the first seven or ten |
| bi-weekly mortgage. Because making your mortgage | | | | years of their mortgage. At that point, their interest is |
| payments on a bi-weekly basis allows you to make | | | | reevaluated based on current market conditions. |
| two extra mortgage payments every year (therefore | | | | The benefit? A lower interest rate to start, particularly |
| the equivalent of 13 monthly payments instead of the | | | | if you plan to sell the home within 7 years. The |
| normal 12) , you can pay down your mortgage faster | | | | drawback? Depending on rates, your interest rate |
| and save tens of thousands of dollars on interest | | | | could jump as high as 6 or 7 percent by the end of |
| alone. | | | | your term. |
| The major disadvantage of a fixed rate mortgage is | | | | The type of mortgage you ultimately select for the |
| that if you get your loan when interest rates are high, | | | | purchase of a home is a weighty decision that must |
| you're locked in at that rate. So, if interest rates fall, | | | | factor in a number of risks and personal |
| you lose out on that potential interest savings and | | | | circumstances. Before jumping into the excitement of |
| would then need to walk through the steps of | | | | new home - especially for first time buyers - you |
| refinancing the loan to get a lower rate. | | | | should talk over options with your spouse, other family |
| Adjustable Rate Mortgage | | | | members, and those who have some expertise in |
| Adjustable rate mortgages become very popular | | | | matters of finance and real estate. |