Types of Mortgages: Basics

[Derrick Sakai]

When mortgaging or refinancing property, there are three types of mortgage options that you can choose from. These are the three basic mortgage options:

• 1. Fixed Rate Mortgages


• 2. Adjustable Rate Mortgages


• 3. Balloon mortgages

Here are a short description of each of the three mortgage types:

Fixed Rate Mortgages: This is what the name suggests, a fixed rate mortgage. The amount of the interest is decided at the time of the loan, or before the time of the loan. The interest rate remains the same for the period of the mortgage.

Adjustable Rate Mortgages: Often known as ARM, this kind of mortgage has a fixed amount of interest for a short period of time(usually from 6 months to 5 years) and then the rates change according to the current market interests. In this process, the lender uses an index, and this adjustment varies based on the lender's policies such as the duration of a single adjustment or the amount. To know more about ARMs, visit this article.

Balloon Mortgage:It's a bit similar to the ARM, because it has a fixed interest rate during a fixed amount of time, except the entire balance of loan becomes due at once after that fixed period of time.

Every loan system has it's own pros and cons and the choices for which one you wish to choose is exclusive to your particular circumstance.

Which one will you choose? and why?

[Jon Klaus]

I prefer fixed with term matching the amortization. I am biased towards buy and hold long-term and want to manage the inflation risk. Balloons can be a killer if your plan doesn't unfold the way you expect, and aren't there often unexpected bumps in the road?