Types of Mortgages

Many years ago, when someone wanted to take out a mortgage, they had very few options. Most mortgages amounted to little more than a simple loan with a fixed interest rate. These days, we have a seemingly endless amount of options, with new types being added all the time. If you're having trouble deciding which type of Maine mortgage loan fits your budget best, take a look at some of the options here:

Fixed Rate Mortgage

Generally, the most popular type of mortgage is the fixed rate mortgage or FRM. It is the only type that maintains the same interest rate throughout the entire life of the loan. Unfortunately, FRMs with a low interest rate can also be very difficult to obtain. They usually require a very good credit score and reasonably sized down payment. The initial monthly payment on an FRM may seem high when compared to other types, but it will never increase like an ARM or hybrid Mortgage.

Adjustable Rate Mortgage

Over the past several years, adjustable rate mortgages have become more and more popular in the United States. What's caused their meteoric rise in the mortgage industry? It's mostly due to their wide availability, lenient approval process, and initial low monthly payments. Unlike FRMS, it is much easier to get approved for an ARM. However, some financial analysts blame the housing market crisis on all of the bad ARMs approved over the past several years.

Hybrid Mortgage

The hybrid mortgage has become another very popular type of home loan over the past several years. As the name suggests, hybrid mortgages are a bit of a combination of both fixed rate and adjustable rate mortgages. Typically, their terms offer 5-10 years of a fixed interest rate, which then convert to an adjustable rate over the remainder of the loan. Hybrid mortgages are considered a better option than an ARM, but not quite as desirable as an FRM.

Interest Only Mortgage

Although the interest only mortgage is more of an option rather than an actual type of mortgage, they are worth noting here. In just about any type of mortgage, you may have the option to make interest only during the first several years of the loan. That means you can make payments solely on the mortgage's interest, as opposed to the interest and the principal. It's a good option for those that might struggle with their monthly payments from time to time.

Balloon Mortgage

Balloon mortgages are often considered the riskiest type and should probably only be used in specific situations. They have terms that last for only 3-7 years, usually with a fixed interest rate. However, when that term comes to an end, the entire balance on the principal is due, which can be a staggering amount of money. That's why most people who take out a balloon mortgage either refinance or sell their home at the end of the term.