What types of mortgages exists?
The two most common types of mortgages are fixed-rate mortgages and adjustable-rate mortgages. Here's a breakdown:
- Fixed-Rate Mortgages: Remember interest rate? With a fixed-rate home loan, that interest rate is fixed, meaning it stays the same until the loan is paid off. Each monthly principal and interest payment will be equal for the length of the loan.
- Adjustable Rate Mortgages: The interest rate on an adjustable-rate home loan, or ARM, can change from year to year. ARMs can be a hybrid of both adjustable-rate and fixed-rate. For example, the lender can set your interest rate at 4 percent for five years and then adjust it according to their own practices.