Different types of mortgages and what you should consider - By: Billy Alverado

When shopping for a mortgage you have numerous options but it is important that you know the basic differences between these different types and what their benefits are. Not every type of mortgage is right for everybody. Understanding these differences and how they relate to your personal financial situation will make a huge impact over the life of your home mortgage, and may save you hundreds or even thousands of dollars.

1. Fixed rate mortgage
This type of mortgage retains the same annual percentage rate throughout the life of the loan. The most popular term is for 30 years, although 15 and 40 year terms, as well as 50 year mortgages are becoming more popular. This type of mortgage gives the homeowner the security of knowing that their payments are not going to change due to increased interest rates. In this current economy it is a good idea to consider a low fixed interest rate mortgage.

2. Adjustable rate mortgage (ARM)
This type of mortgage is based on shorter term securities which fluctuate based on several financial indexes. ARM mortgages typically have lower payments that are attractive to buyers who are looking to qualify for a larger home. These loans also come with the option to convert or refinance to a fixed rate. This mortgage may also be good if you plan to live in your home for only a few years.

3. Interest-only loan
An interest-only loan offers even more affordable monthly payments during the initial interest-only period, which usually lasts no more than five years. During or after the initial period, the homebuyer can refinance or pay off the entire loan amount, which some buyers do by investing the savings in a high-yielding investment during the initial period.

4. Sub-prime loans
Sub prime loans were designed for borrowers with a lower credit rating and usually come with a much higher interest rate. These loans may also have a balloon payment requiring the buyer to pay off the balance after a specific period of time. A lot of trouble has occurred lately as a result of these loans. Homeowners have been getting hit with increased interest payments and consequently higher monthly payments. These higher payments have caused many homeowners to go into foreclosure. Be sure to consider the full terms of this style of mortgage.

5. 100 percent financing
This mortgage does not require the buyer to place a down payment, but instead finances the entire purchase price of the home. In order to qualify for 100 percent financing, you must have a good credit rating. This type of loan is in many cases a government insured loan such as a VA loan.

6. 80/20 or piggyback mortgage

The 80/20 or piggyback mortgage loan is ideal for homebuyers with little or no down payment and it eliminates the need for PMI. With this loan, the homebuyer takes out two loans, one for 80 percent of the purchase price and one for the remaining 20 percent. The 20 percent loan usually has a slightly higher interest rate. One of the benefits to the 80/20 loan is the combined 80/20 payment is typically less than the cost of a loan of greater than 80 percent of the home's value, plus mortgage insurance, especially if the homeowner is able to itemize their deductions on federal income tax, as mortgage interest is deductible but mortgage insurance is not.

It is important that no matter which type of loan you choose, you make sure the mortgage best fits your financial situation. You need to make sure you fully understand all the terms of your mortgage. You should consider contacting a lawyer or mortgage specialist before taking out a home loan.

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About the Author

For your FREE CD, FREE e-book, and FREE coaching call with Mortgage Modification Expert and Business Man of the Year Billy Alvaro visit http://www.RescuedBySaintJude.com Saint Jude's Mortgage Rescue

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