Sorting through the different types of mortgages.

The different types of mortgages

You’re in the process of finding -- or you’ve already found -- a new home. Unless you have the cash to entirely finance the purchase, you’ll need a mortgage. So what different types of mortgages are there?

Fixed-rate loan. Interest rates and monthly mortgage payments are fixed for the life of the loan, typically 15, 20, or 30 years.
Adjustable-rate mortgage (ARM). Mortgage-payment rate and loan payments vary. With these mortgages, interest rates start lower than with a fixed-rate mortgage, then become variable. At specific intervals (typically every year), a lender adjusts the rate up or down as interest rates fluctuate.
Balloon loan. The APR is fixed for a set number of years (typically 7), then the entire loan balance is due in full.
Federal Housing Administration (FMA) mortgage. Eligible parties may qualify for a down payment as low as 3%. Loans come from lenders approved by The U.S. Department of Housing and Urban Development (HUD).
VA loans. The Department of Veterans Affairs helps eligible veterans and service personnel get loans through conventional lenders. Down payments may not be required.

Fixed rate or ARM?

Most lenders recommend ARMs if you plan to spend 5 years or less in the home. Otherwise, a fixed-rate loan may make more sense. If you decide on the ARM, ask how the interest rate and monthly payments will change over the life of the loan.

Mortgage advice & tips:

Don’t judge a mortgage solely by interest rates. Understand points and other loan fees lenders may assess.
Ask mortgage companies for itemized lists of loan fees for services such as appraisals and credit reports.
Check to see if interest rates are current. They can change daily, so find out if the rate you’re quoted is the lowest for the day or for the week.
Avoid mortgages having prepayment penalties.

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Choosing a mortgage company | Search for a local mortgage company | Different types of mortgages | Mortgage glossary

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