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A Short Guide to Common Types of Mortgages

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Home ownership is part of the American dream, but it’s not always a reality. Part of what hinders people from buying a home is that it is the single largest purchase they will ever make. The process can be confusing and trying to figure out how to pay for the home is one of the hardest parts. Getting a mortgage isn’t always easy, but it helps to know what the options are. Here are the essential things to know about three of the most common types of mortgages.

1. Fixed-Rate Mortgages
One of the most important things to consider when financing your purchase is interest rates for home loans. The interest rates for fixed-rate mortgages are, of course, fixed which means that they remain the same over the life of the loan. The pay back period for loan may be five, 10, or 20 years, but the interest rate will always be the same and the payments will be evenly divided.

2. Variable-Rate Mortgages
Unlike fixed-rate mortgages, variable-Rate mortgages carry an interest rate that can change with market rates. This means that the interest rates can and likely will fluctuate and not be the same from month to month. One of the benefits of these is that they are low rate mortgages to begin with, so home owners can enjoy a smaller payment starting out.

3. Federal Housing Administration Loans
The Federal Housing Administration was established to help people who would otherwise be unable to buy homes. These are also low rate mortgages and are backed by the federal government, which makes lenders more likely to lend to borrowers who may not have perfect credit or stellar income.

Which of these mortgages is right for you depends on a number of different things. It’s important to start shopping for a mortgage early and before you begin looking for home to buy. It’s also important to compare home loans and compare mortgages from different companies before committing to one.

Do you have any questions about types of mortgages or how they work? Feel free to ask us in the comments section below.
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