Studying mortgage details is about as exciting as going to the dentist. Or to the grocery store on the day before Thanksgiving. But just like both of those things, it’s something you’ll have to do to participate in adult society, at least, if you want to buy a house.
And while you may not know it, you have choices when it comes to the types of mortgages you can sign up for. They aren’t one-size-fits-all, though the fixed-rate mortgage fits most.
Learn about the three most common mortgage types, who they’re best for, and the advantages of each in the quick guide below.
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Different Types of Mortgages
What do we mean when we say different types of mortgages? Don’t they all have the same purpose? Yes, they do, but the rate, amount down, bank partnership, and payback structure can differ. Those factors will impact how much you pay back a month and the amount of equity you earn.
No matter what type of mortgage you sign, you need mortgage protection insurance. With that said, let’s start with the most common mortgage type.
When you have a fixed-rate mortgage, your monthly payments are the same every month. Your payment rate is determined at the time of purchase and it won’t increase or decrease, even if your credit score does.
Most people have 30-year fixed-rate mortgages, but you can ask for a 10, 15, 20, 40-year length as well, depending on your payback ability.
If you’re an average person trying to buy a home, this is most likely the best choice for you.
Adjustable-Rate Mortgage or ARM
While a fixed-rate mortgage’s interest rate doesn’t change over time, an ARMs does. An ARM is governed by trends in the economy and changes in the market. Commonly these are 5/1 type mortgages, meaning it’s a 30 year mortgage. For the first five years the rate will remain the same, and then it will change with the economy.
This is a good loan type if the market is bad when you’re buying but looking like it will improve in the coming years.
Federal Housing Administration Loans
The US Government wants people to buy homes. It’s good for the economy and it furthers the idea of the “American Dream”. But they know buying a house is a difficult process. So, certain groups of people at certain income levels can apply for an FHA mortgage.
It essentially has built-in protections if the homeowner is unable to pay the mortgage back at some point. If you can’t afford a large downpayment and you qualify for FHA assistance, then these are great loans for first-time homebuyers or those in a pinch!
Different Types of Mortgages for Different Homebuyers
Buying a house is a big life decision, which means you’re responsible for doing your research beforehand. We hope you have a better idea of what types of mortgages there are now, and which is the best fit for you.
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