Now that your offer has been accepted and your loan has been approved, it is time to select what type of mortgage you will want. There are fixed rate mortgages, adjustable rate mortgages and balloon mortgages.

The fixed rate mortgage is the most common type of mortgage.

Fixed Rate Mortgages
This is the most popular type of mortgage. Why? This mortgage consists of set monthly payments over a set amount of time. The mortgage length is typically between 15 and 30 years although you may acquire longer or shorter amortization periods.

The benefits of this mortgage are the stability of knowing that this payment never changes with any fluctuations or increases. Therefore, the homebuyer has no surprises when managing this particular payment into his finances.

The fixed rate mortgage is based upon a fixed rate loan. A fixed rate loan has an interest rate agreed upon remaining the same throughout the duration of the mortgage. Consequently the monthly payments remain fixed throughout the duration of the mortgage.

The majority of the initial payments go towards paying the interest incurred on the loan. Once the interest is paid off, the remaining payments will begin to pay off the principal. If you would like to explore a fixed rate mortgage, please click here.

Adjustable Rate Mortgages
And adjustable rate mortgage is a loan where the interest rate is re-evaluated at different set intervals in the duration of the loan. This is very different from the fixed rate mortgage as the monthly payments may change after the mortgage has been re-evaluated, either increasing or decreasing the homebuyer's monthly payment.

The re-evaluation is based upon the current interest rates offered by the institution and the current market conditions.

Mortgage types are flexible in that you can change from one type to another after your mortgage term is up. For example, the first 15 years of the mortgage duration could be fixed and the remaining years could be adjusted. This is called the Adjustable Rate Mortgage (ARM). This is a popular choice as interest rates could be significantly different in years down the road, yet payments for the first years would remain stable.

An important note is that the ARM usually gives the homebuyer a lower interest rate (in the two to three percent range). There is a large variety of ARM's available, with the adjustment period usually occurring annually or bi-annually.

Balloon Mortgages
A balloon mortgage is similar to a fixed rate loan as payments are made in equal installments over the duration of the loan. However, it is NOT fully amortized over the term. At the end of the specified period the balance of the mortgage comes due. Thus, a balloon payment needs to be made. The remaining principal can be paid off or it can be re-financed.

Which Mortgage is Right for Me?
A mortgage is one of the biggest decisions you will make. It has to be right for you and therefore it is very much a personal decision but must be made from an educated standpoint. Keep in mind: how long you plan to keep the home, current financial status and financial status in the years to come.

Choosing a mortgage is very much a personal decision that must be based on your personal situation. It is highly recommended that you speak to a mortgage professional. For online inquiries we recommend this link.