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