Mortgage Dictionary -> Mortgage Types
Things used to be so much simpler especially when it came to mortgages. You'd choose a 15 or 30 year fixed rate mortgage and that would be that. Nowadays, however, there are so many different options when it comes to mortgages, which can make it a little bit difficult to choose what type of mortgage to get. Being educated about the different types of mortgages is key to finding the best one for you, so read on about the major types of mortgages.
It's the most traditional mortgage there is, and by far the most reliable one. In a fixed-rate mortgage, the interest rate is consistently the same throughout the time of the mortgage. Monthly payments typically stay the same because the interest rate never fluctuates.
The adjustable-rate mortgage is the opposite of the fixed-rate mortgage: the rates are variable, meaning they change as often as the lender's system allows. Depending on the type of interest rate system the lender has in place, an ARM's interest rate and consequently, the payments may change every six months or every year. ARMs are known for low payments initially and increasing payments over time.
With this type of mortgage, the borrower only pays the interest on the principal of the loan for a specific amount of time. Then when the time has expired, they can either pay only the interest again, or can start paying on the actual principal.
A HELOC is, essentially, like a second mortgage in that the borrower receives a maximum line of credit from the lender for a specific period of time. This line of credit is based on the equity of the home. The borrower is then free to use this money, but must pay it back at the end of a specific period determined by the lender.
Geared toward senior citizens 62 and older, the reverse mortgage is a very unique type of mortgage. Rather than paying back the loan with money, the borrower simply gives up the rights to the home when they move out or die. In exchange for these rights, the borrower is given either monthly payments from the lender based on the home's equity, or can take a substantially less over time lump sum.