The Most Common Types Of Mortgage Loans Explained

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Most people that want to buy a home will need to take out a mortgage to pay for it. Unless you have the cash available to buy your new home outright it is the only viable alternative. It is a very big decision to buy a new home. So we want you to understand the most common type of mortgage loans available so you can decide which one makes the most sense.

You need to understand that there are many different types of mortgages available and this can make choosing the right one for your situation quite a challenge. Mortgages vary by interest rate and the repayment term and there are other factors too. We will try and make this clear to you in article about the most common types of mortgage loans.

types of mortgage

A Fixed Rate Mortgage

Of all the types of mortgage loans available this is the most popular. As the name suggests, a fixed rate mortgage means that the interest rate will always remain the same for the entire duration of the loan. Fixed rate mortgages are so popular that they account for 75% of all loans for home purchases in the United States.

You usually have the option to go for different term lengths with fixed rate mortgages. There is usually a 10 year repayment option, a 15 year repayment option and a 30 year repayment option. Although the 30 year repayment option is the most popular choice, the 15 year option will mean that you pay a lot less and create equity in your home a lot quicker.

If you go for a fixed rate mortgage over a 15 year repayment term then your monthly repayments are going to be higher than if you chose a 30 year repayment term. But you will pay a great deal less in interest. The higher the mortgage loan amount the more interest you will save. It’s all common sense really.

The obvious advantage of the 30 year fixed rate mortgage is the lower monthly repayments. This can be really attractive to first time buyers who do not have the budget to pay a lot more. This is fine but if you want to move to another home and sell your existing one before you have paid off the mortgage then you may not have the equity available.

Advantages and Disadvantages of a Fixed Rate Mortgage

A fixed rate loan brings certainty which a lot of people want and it is the number one reason why it is king among the different types of mortgage loans available. When you first agree your fixed rate mortgage your lender will make you aware of the interest rate. This will not change at any time during the term of your mortgage.

The only real disadvantage of a fixed rate mortgage is if the broader interest rate falls significantly. If this does happen then most lenders will allow you to refinance your home again at lower rates. If you choose to do this then you will normally have to pay closing costs for your original mortgage. Some lenders may waive these charges in order to keep you as a customer.

Adjustable Rate Mortgages are Popular Types of Mortgage Loans

Some people will go for an adjustable rate mortgage (ARM) because it allows them to make smaller repayments at the beginning of the term. Basically an ARM is a loan where there is a specified period after which the interest rate will change. If you are considering an ARM then you need to understand that it is riskier than a fixed rate mortgage.

The main reason that ARM’s are popular types of mortgage loans is because the interest rate will be lower than that of a fixed rate mortgage initially. If interest rates do not change this is fine as you can actually purchase a more expensive home by using an ARM. But if there is a jump in interest rates then this could mean that you can no longer afford your repayments.

If you intend to sell your home quickly then an adjustable rate mortgage may be a good choice for you. If you have an ARM then our advice to you is to pay more than you need to on a monthly basis in order to create equity in your home which provides a degree of protection if interest rates suddenly shoot up.

Common Terms for Adjustable Rate Mortgages

There are different ARM’s available and you need to know about these types of mortgage loans so that you can go for the best one. A 10/1 ARM is a 30 year mortgage where the first 10 years have a fixed interest rate. The interest rate adjusts each year after the initial 10 year period.

You can also go for a 5/1, 5/5 and 5/25 option with an ARM. With all of these options the initial low interest rate does not change for the first 5 years. With a 5/1 the rate adjusts every year after the first 5 have elapsed, and a 5/5 has an interest rate adjustment every 5 years after the initial 5 year fixed period.

The 5/25 is a bit different and you will sometimes see this type of ARM referred to as a “30 due in 5” home loan. There is a fixed 5 year rate at the start and then one change of interest rate in year 6 which continues for the rest of the loan period. There are also 3/1 and 3/3 ARM’s available.

Which of the Popular Types of Mortgage loans will you go for?

Now that you know how the most common types of mortgage loans work it is time for you to decide which one is best for you. Do your homework and calculate what you can comfortable afford each month. If you want predictability then go for a fixed rate mortgage.

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Timothy Hanson
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Timothy Hanson

Hey Tim My names is Timothy okay that we have something to n common. I would like to earn more cash. I would put a down payment on a new house.

Eyvonne taylor
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Eyvonne taylor

I am retired on SS need home to rent or rent to own. I have poor credit and no savings. I barely make ends meet. Place I’m at is being sold and I have to move soon. I have two dogs that are friendly and a husband who does not work only enough to get what he needs. Please can you help me? ty

Gator
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Gator

Yes I have a place you can rent for your dog and your husband I’m sure. He will find a good job and be happy and and keep it cheer. Their is alway Hope and believe in him

Barbara Davis
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Barbara Davis

Lose my number because I don’t want anything from you!

Joyce Moyer
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Joyce Moyer

I’m on disability .so my mother .we need a car . and a house .im her caregiver and we can’t get to appointment or any Were else need a cheap car. Live in Pennsylvania.

Christine Roth
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Christine Roth

Thank you so much for the patterns. I have been wanting to do something a little different.

Darrell Ball
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Darrell Ball

Phoenix 44st and McDowell cvs parking lot with a yes or no now is a great time to get together and make it happen for sure okay

Darrell Baugh
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Darrell Baugh

Today is the key component of this program that provides information about what each of us will do versus what we can not do and what we are going to do analytics and you are really interested and willing to take me back to your place where we can do it in the same way as possible to make sure that we are waiting for me as well as you know about the new options that you can start with a girlfriend who has a big heart that you want to be able to do about this thing with her… Read more »

Percy
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Percy

You know; punctuation goes a long way, in helping to deliver a written & coherent message?!

After finishing reading your post; I was irritated that I did.

Are you a high school graduate?

I realize this is only a “message board”, but out of respect for the time of people that take to read your posts; please use punctuation?!!! It makes it so much easier & more successful!

Daniel Stephensen
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Daniel Stephensen

I’m one of those odd folks who PAID CASH for a house. I owe no one and don’t even have or want a HELOC. I also pay cash for my cars and I’m just a lowly retired Civil Servant. I did not inherit wealth either.
Enjoy your weekend
Dan

Dena
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Dena

What does that mean heloc i just dont know

Alfredo Conde
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Alfredo Conde

I would like to see if you can help me in refinancing my home for lower payments and what would be my best option thank you

Ronnie Lane
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Ronnie Lane

Thank you in advance for what you can and can’t do I am a Handyman man looking for a line of credit of $150.000 thousand dollars to purchase and repair home with 20 years term @4_5% rate

Francisco Xavier
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Francisco Xavier

I need buy a house

Francisco Xavier
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Francisco Xavier

Yes I do

Bobby
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Bobby

Please from here on… when u want to send any messages forget me..pleaseeee don’t send me anymore messages

Delores Hardnett
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Delores Hardnett

Live in Connecticut looking for a rent with option to buy or just rent for 2 people On a fixed income be looking for it to hearing from you can you help me out

Tom Winters
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Tom Winters

Some very good advice. Thanks

Don
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Don

Wife & I own our home outright…both on disability. Besides selling, is there anything you can do to help us?

Margie
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Margie

I don’t mean to be nosey and maybe you got your home with money that you and your wife made before getting on disability. But my question is how were you able to purchase a home on disability if this is what you did? Reason for asking is because my spouse an I are also on disability and we don’t know how about getting a home while on disability since I didn’t think any mortgage place would work with ppl who are on disability. Thank you for any answers you can give me. Have a good weekend!

Karin Todd
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Karin Todd

I am also on disability & own my own home. Not that my answer will help you, except to satisfy your curiousity, but I was able to buy my home for cash with the back-pay check I received when my SSDI was finally approved.

Kecia Wright
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Kecia Wright

Rent to rent club alway send me all the time I still can’t stand with it that’s my reason I can’t offer to buy a house I’m stuck and doing about it

Brad White
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Brad White

I’m on SSDI benefits for life. Looking for rent to own home with bad credit. Tired of renting going up and can’t afford pricey going up not covered the SSDI benefits and plus work also.

Michael Herring
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Michael Herring

Yes if you can I wouldn’t mine and give it a try I too on sad congo Mike

.

Dena
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Dena

What does that mean heloc i just dont know

Patricia A Chase
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Patricia A Chase

It’s all good advice depending on your situation. The banks are here to stay, for the rich mostly. The middle-class is getting squeezed out and anything money doesn’t include poor. I would like to see more bartering going on!! Now let’s gmtalk.

Leslie barnett
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Leslie barnett

I’m on a fixed income and I would like to own my own home

Joseph A Harlow
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Joseph A Harlow

I recently attended at my church for nine weeks, Dave Ramsey’s Financial Peace University. The best loan is a FIXED RATE MORTGAGE, NOT AN ARM LOAN!!! Google, YouTube, whatever you have to do. If you get an ARM LOAN, you might be paying 6-700 dollars a month, but sooner than later, your ARM LOAN will climb up to 2-3,000 dollars a month. Please, check out Financial Peace University. I watch 60 minutes just about every Sunday and 1 evening several years ago, a segment was on loans and so many bank and loan institutions would lie about the amount people… Read more »

Tammy Hansen
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Tammy Hansen

I’m on SSI and I have BAD credit and I have two small dogs and I need a car and a small house with a fenced in yard I’m on section 8 I also need a car that can GET me around can you please help me out with my needs I’m waiting to hear from you soon. Thank you very much Tammy

Carrie younger
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Carrie younger

I would like to get a rent-to-own house but I have bad credit and I am on disability and fixed income

Brenda carr
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Brenda carr

I’m on soc security just making end metered and living with my daughter I don’t have a down payment on a home but I’m looking for a rent to own home can you help me please

Lee Rose Killen
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Lee Rose Killen

I am in a Rent to own Home for about 3 years. Me and my friend , he’s retired I still work. We both have bad credit, have tried to get loans. The owner is ready to sale the house. We don’t t have any money. If we have leave. We Wiil be Homeless. Please help us.

Rose Mock
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Rose Mock

I’ll be really checking on this site on the 1st

Thomas F Cummisky
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Thomas F Cummisky

I can afford a 1000$ a month for a mortgage payment I have ok credit and I have a car loan need a house big enough for me my future wife and children can. U help me secure a mortgage loan

Adonis brown
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Adonis brown

I’m on ssdi I need a rent to own home I have no savings and I barely meet my my needs I am in a house that’s being sold soon if you can please help

Rick
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Rick

The golden years suck !! Old age is for the birds.

Daniel Flores
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Daniel Flores

I don’t know who started that golden years bs. At best they are bronze.lol. It is no comfort to see that I am not alone in my search for a home and fall right in line with the less than enviable credit, the fixed income and the need for more income that daily reminds me of my pathetic financial situation.I was on ss disability since a car accident in 2007. I had back surgery in 2012 and have made a remarkable recovery. I am capable of working and have been trying to find employment. My problem I am 70 years… Read more »

Inés Maria López
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Inés Maria López

If I would love to buy my house but I don’t have money then I don’t have credit I need to win and God help me

Russell L Hess Sr
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Russell L Hess Sr

I own my home, I also have a excellent credit rating. I live allow and I am retired on a fix income. What I need is money to repaired my roof. I have a loan against my Jeep borrowed enough to get my great granddaughters teeth have about nine more months to pay off. I would need around $10.000 let me know if it’s possible and the interest rate, say for 5; Years. Russell Hess Sr.

Alvah Sims
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Alvah Sims

Contact me about fixed rate financing and good finance programs

J Ramsay
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J Ramsay

I’m interested in a home that Cost as 75000. And want a fixed rate. Can you give me the amt of pymt for 15 yr vs 30 yr?

Barb Foster
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Barb Foster

I live in Michigan. I am looking for a rent to buy home on a lake in Caledonia, Algonquin Lake, I am also looking for an additional way to earn income.

Christi king
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Christi king

I need a rent to own in south carolina

Michael Johnson
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Michael Johnson

Great information concerning the different types of mortgages. Thank you.