Fixed Rate Mortgages:

With a fixed rate mortgage the original % percent of interest that you agree to at the beginning of your loan remains consistent throughout the life of your loan.  Your rate will remain the same regardless of what is going on with the prevailing market interest rate.  Typically you can choose a 15 or a 30 year mortgage.

Adjustable Rate Mortgage:

Also known as a variable rate mortgage this type of mortgage is the opposite of a fixed rate mortgage. With this type of loan your interest rate and resulting monthly payment will depend upon the prevailing market interest rate.  Depending on the type of ARM you decide upon your rate could change from month to month as is the case with a fully adjustable loan or could be consistent for 6-12 months at a time before changing.  (Refer to Glossary for other Adjustable Rate terms: Adjustment Period, Initial Rate, Financial Index, Margin, Maximum Rate, and Rate Adjustment Cap)

Hybrid Loans:  A hybrid mortgage starts off with a fixed rate for a determined period of time usually for as short as 1 year and as long as 10 years.  After this predetermined period of time the loan takes on the characteristics of an adjustable rate mortgage for the reaming life of the loan.

Balloon Mortgages:

In some ways a balloon mortgage resembles a hybrid loan because there is a fixed payment for the loan for a predetermined time (usually 4-10 years) however at the end of this time period the entire balance of the loan is due.  Be very careful in choosing this type of loan.  You should really only consider this type of loan if you are sure that you will be able to refinance before you balloon payment is due, or if you are positive that you will have the finances to cover the entire loan amount before it is due.

Interest Only Loans:

For interest only loans a five or ten year interest-only period is typical. After this time, the principal balance is amortized for the remaining term. In other words, if a borrower had a thirty-year mortgage loan and the first ten years were interest only, at the end of the first ten years, the principal balance would be amortized for the remaining period of twenty years. This means that for the beginning period your payment would be significantly lower because the borrower is only paying the interest portion of the loan and  not actually paying back any of the money you borrowed (the principle), but once this time is up the monthly payment increases significantly.  This type of loan can be risky for both the lender and the borrower. Since the lender sees this type of loan as more high risk the interest rate is usually higher. It is risky for the homeowner because they are not actually building any equity in an interest-only loan, thus the borrower may be adversely affected by prevailing market conditions at the time he is either ready to sell the house or refinance. He may find himself unable to afford the higher regularly amortized payments at the end of the interest only period, unable to refinance due to lack of equity, and unable to sell if demand for housing has weakened.

Negative Amortization Loans:

more risky than even an interest only loan, a negative amortization loan doesn’t even cover the monthly interest payment.  As a result the amount you owe towards your loan actually gets bigger each month.  Instead of your loan decreasing over time the loan actually increases. In most cases people who opt for a negative amortization loan do so only for a short time until they can refinance into a more traditional type of loan where they can afford the higher payments.

Jumbo Loans:

Are for loan amounts that are over the industry standard. This standard is set by the two largest secondary market lenders, Fannie Mae and Freddie Mac. Loans above the conforming limits may be offered by seller services of these wholesale institutions, as well as Wall Street conduits who provide warehouse financing for mortgage lenders. Fannie and Freddie Mac set a limit on the maximum dollar value of any mortgage they will purchase from an individual lender. The maximum mortgage amounts for a Jumbo loan go to the $1 million or $2 million range. This type of loan is much riskier for the lender because if the loan defaults it is much more difficult to sell a luxury residence quickly for full price. For this reason the lender usually requires a larger down payment on a Jumbo loan as well as charges a slightly higher interest rate.