Mortgage Loan Types

The word "mortgage" (method of using property as security for payment of a debt) is quite frequent in our life, but not all of us know that there are different types of mortgage loans.

There are two main types of mortgage loans – fixed rate mortgage or FRM and adjustable rate mortgage or ARM.

A fixed rate mortgage (FRM) has the same interest rate and monthly payment throughout the term of the mortgage. The payment is calculated to payoff the mortgage balance at the end of the term. The most common terms are 15 year and 30 years, but also there are biweekly and convertible mortgages. Let’s take a look on the most popular 15 and 30 year fixed rate mortgages.

The 15-year fixed rate mortgage gives permission to house owners to own their homes free and clear in half the time and for less than half the total interest costs of the traditional 30-year loan. The loan's term is shortened by the 10 percent to 15 percent higher monthly payments.

30-year fixed rate mortgage may still be best for your circumstances, because it offers the lowest monthly payments of fixed rate loans.

An adjustable rate mortgage (ARM) is the best choice for those, who care about lower monthly payment. But the interest rate changes periodically in relation to an index and payment may go up or down respectively. So, if you are sure that your income will increase adjustable rate mortgage is right for you.

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