A mortgage is an impediment on property or in other words it is the loan secured from financial institutions or banks for any real property. Mortgage is generally used to finance a house. The two popular types of mortgages are , “fixed-rate” and “adjustable-rate” mortgages.

Fixed rate mortgage : These loans feature fixed rates and monthly payments, generally for 15-year and 30-year periods. If you go for 15 year period , the monthy payments will be high whereas if you go for 30year period ,the interest will be very high.

Adjustable-rate mortgage : In ARMs , the interest rates and monthly payments will move up and down according to the market intersest rates. Here initially the rate is kept fixed for a certain period of time say for a month or a year, it depends on the lender. If you consider the 5/1 ARM, which has an initial fixed-rate period that lasts five years after which the rate is adjusted annually. The other hybrid ARMs are 3/1, the 7/1 and the 10/1.

Fixed or Adjustable ?

The low initial cost of adjustable-rate mortgages, can be very tempting to home buyers, yet they carry a degree of uncertainty. Fixed-rate mortgages offer rate and payment security, but they can be more expensive. So its upto the buyer to decide the type of mortgage .

Besides the standard fixed-rate and adjustable-rate mortgages, there are other types of mortgages :

Two-step mortgage : Here first we must pay a fixed rate, followed by one adjustment, then a fixed rate and payment for the remainder of the loan term. For example, a 7/23 has an initial fixed period of seven years, an adjustment, and then 23 more years of payments

Balloon mortgage : Borrowers get less rates and monthly payments for a certain period of time, which usually may be around three years. At that point, a borrower has to pay off the principal balance in a single pay

Assumable mortgage : A house owner with an assumable loan instead of selling the house to pay the loan amount, can hand over the loan to a new buyer.

Construction mortgage : Initially during construction, borrowers pay higher rates when they draw money to pay their builders, paying only interest on the principal amount. Then, they change the loan to a traditional, long-term fixed-rate mortgage.