Types of mortgage loans - Compare and choose the best option

The mortgage industry offers a variety of loan programs suitable for a wide range of borrowers. There are loans that require high payments but there are also programs specially developed to provide homeownership opportunities to low-income families. These mortgages have special features and one really needs to get a brief idea of their pros and cons before he applies for it.

This section provides you with an explanation of mortgage types and their features. Apart from highlighting the types of mortgage loans, this section also mentions who all are suitable for the different types of mortgages. The purpose is to help you explore the features of various types of mortgage loans so that you can compare and choose the one that's best for you.

Types of mortgages	Features	Eligible Borrowers
Fixed rate mortgage (40, 30, 15, 10 years)	Fixed rate of interest and hence fixed Monthly payments throughout the loan term.	Borrowers who are planning to occupy the property for at least 10 years. Those who don't prefer higher payments.
10/1 year ARM	Interest rate and the monthly payment remain the same for 10 years. From the 11th year, the rate is adjusted every year. This will change the payments each year for the rest of the loan term.	Intend to occupy the property for more than 10 years. Like to make stable payments initially but can afford higher payments later on. OR Plan to leave the property within 10 years. Want to continue with the loan even if there are changes in the plan.
7/1 year ARM	Interest rate and monthly payments remain fixed for the first 7 years. From the 8th year, interest rates are adjusted every year. The payments are thus changed every year till the loan period is over.	Plan to stay in the property for more than 7 years. Prefer stable payments initially but can keep up with higher payments later on. OR Plan to vacate the house after 7 years. Want to carry out with the loan in case the plan changes.
7/23 (2-Step)	Fixed rate and monthly payments for first 7 years. On the 8th year, the interest rate is adjusted according to prevailing market rates. The resulting payments will remain constant for the remaining loan period.	Plan to occupy the property for more than 7 years. Those who can afford just 1 payment adjustment. OR Those who plan to move out within 7 years. Those who want to continue with the loan in case there is any change in the plan.
5/25 (2-Step)	Interest rate and monthly payment remain the same for the first 5 years of the loan period. The rate is adjusted on the 6th year to reflect the prevailing rate. The resulting payment remains constant throughout the rest of the loan term.	Borrowers intending to stay in the property for more than 5 years. Those who can bear with one payment adjustment OR Borrowers who plan to move within 5 years. Those who want the loan to remain in force in case of any change in the plans.
5/5 and 5/1 year ARM	For the first 5 years, the interest rate and monthly payment remain constant. But from the 6th year, the rates adjust after every 5 years and 1 year respectively.	Those who can put up at the property for more than 5 years. Borrowers who like stability in monthly payments initially although there may be increase in payments later on. OR Those who may leave the house within 5 years. Borrowers who want to continue with the loan in case plans change.
3/3 and 3/1 year ARM	The interest rate and monthly payments remain fixed for the first 3 years. From the 4th year, the rates are adjusted in every 3 years and 1 year respectively.	Borrowers who plan to stay in the property for than 3 years. Those who can accept initial payment stability and any changes later on. OR Borrowers willing to abandon the property in less than 3 years. Those who want the loan to remain in force in case of any change in the plan.
1 year ARM	The interest rate is adjusted every year as a result of which the monthly payments also vary each year for the entire loan term.	Borrowers who want to take advantage of low rates. Those who can bear additional costs due to yearly payment changes. OR Borrowers who cannot qualify for high rate loan programs.
5 year Balloon Mortgage	Interest rate and monthly payments remain unchanged for the first 5 years. After 5 years, the borrower must refinance the loan (which is largely due) at the prevailing rates.	Borrowers who plan to occupy the residence for more than 5 years. Those who can refinance their previous loans at the prevailing market rates. OR Those who intend to vacate the property within 5 years. Those who like stability in payments.
7 year Balloon Mortgage	Interest rate and monthly payments remain fixed for 7 years. At the end of 7 years, the borrower should refinance into a new loan at the prevailing market rates.	Borrowers who want to live in the property for a time period exceeding 7 years. Those who can refinance at the available market rates. OR Those who are planning to move out of the property within 7 years. Borrowers who prefer payment stability.

Related Articles

• Fixed Rate Mortgage
  
• Adjustable Rate Mortgage