What are the different types of mortgages? Mortgage is a loan that we get to pay for the homes or other real property we buy. We all want to own our own houses. We all want to have properties under our name. We all want to have a place that we know we can be ourselves and no one can mind. This is why we take a mortgage loan. There are different types of mortgages that we can get. Get to know all these so that you can choose which can give you the most benefits.
The fixed rate types of mortgages are those that have the same interest rate your entire life. You see, mortgage rates can fluctuate quite drastically, depending on the economy. The fixed rate types of mortgages ensures you that you have a rate that you will be able to prepare for as you are guaranteed that it will remain the same. These are the most common types of mortgages. In fact, 75% of all mortgages in the US are fixed rate. The main advantage of these is that they are very predictable. You will know how much to pay and allow you to budget your money better.
The second of the many common types of mortgages are the one year adjustable rate mortgages. As the name implies, these are the types of mortgages wherein the interest rates will change after a year. At the beginning of the period of the loan, you will be required to pay for a fixed interest rate. But after that period, an adjustable rate mortgage will be given to you. These are the more risky types of mortgages as you will never know how much the rates will fluctuate. There are two advantages that one can get from these types of mortgages. First, you will be given a beginning interest rate that is lower than that of the fixed rate types. Second, these types of mortgages allows you to qualify for bigger loans, therefore you can get a more valuable house.
Next, we have the 10/1 Adjustable rate types of mortgages. Here, you will be required to pay for 10/1 ARM (adjustable rate mortgage) at the beginning of the loan period. This means that you will be required to pay a fixed interest rate for the first 10 years of your mortgage. After this period, your interest rate will change. If you plan to get a mortgage plan that will take more than 10 years, this is not advisable as you may end up paying huge interest rates after the first 10 years.
Two step mortgages are types of mortgages that are characterized by the same interest rate for the first part of the mortgage then another rate for the second part of it. The change in the interest rate will depend on the current market rates. Therefore, you will not be sure how much your interest rate will be after the first part. The main risk that one will take when getting two step mortgages is that you will never know how much your 2nd step rate will be.