Fixed Rate Mortgages: Payments remain the same for the the life of the loan

Types

• 15‐year
• 30‐year

Advantages

• Predictable
• Housing cost remains unaffected by interest rate changes and inflation.

Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits

Types

• Balloon Mortgage‐ Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is clue or refinanced (though not automatically)
• Two‐Step Mortgage‐ Interest rate adjusts only once and remains the same for the life of the loan
  ARMS linked to a specific index or margin

Advantages

• Generally offer lower initial interest rates
• Monthly payments can be lower
• May allow borrower to qualify for a larger loan amount