There are several different types of home loans available to consumers today. There are fixed rate and adjustable mortgages along with balloon mortgages. An educated home buyer will understand which mortgage is the right loan type for them. Each person should carefully consider their situation in order to make the right decision.
A fixed rate mortgage is the most common type of home loan on the market today. The interest rate is fixed, which means it will not change during the loan term. The length of the loan term can be either 10, 15, 20, or 30 years. The 30 year fixed rate mortgage is the most popular choice because it provides a low payment that will not change over the life of the loan. Some people prefer the fifteen year fixed rate because it will save a lot of money in interest payments, although the monthly payment will be higher.
An adjustable rate mortgage is attractive for people that do not plan on living in the home for a long period of time. The initial interest rate is much lower than fixed rate mortgages. After a certain period (usually 3 or 5 years) the interest rate adjust to a higher rate. This type of loan is popular for people who believe interest rates will be lower in the future.
Balloon mortgages are not that common. They offer a short term with lower payments than a fixed rate loan. At the end of the mortgage term the balance of the mortgage must be paid. This payment is the balloon payment, which is usually the entire balance of the mortgage. This can also be a good option for people who intend to sell their home after a few years.
Understanding which mortgage fits your situation is important. A fixed term is best for people who intend to live in the home for a number of years. An adjustable rate or balloon mortgage may be more suitable for people who plan on selling their home in a few years.