Types of Loan
Fixed-Rate Loans
A fixed-rate mortgage loan ensures that your interest rate and your payments
will stay the same over the life of your loan. You can choose the length of
the repayment of the loan, usually 15, 20, 30 or 40 years. Shorter term
loans may have higher monthly payments, however the interest rate is lower,
and you pay less interest and build
equity faster.
Adjustable-Rate Loans
An adjustable-rate mortgage (ARM) is a loan that the interest rate you pay
is adjusted from time to time and keeps it in line with the changing market
interest rates. When interest rates go down, the monthly mortgage payments
may also go down and when interest rates go up, the monthly mortgage
payments may go up as well. An ARM loan has a limit on how large an interest
rate increase is permitted during each adjustment period and also a limit
that sets the maximum total amount of all interest adjustments over the life
of the loan. The adjustment periods of an ARM loan are usually 3, 5, or 7
years.
Balloon
Loans
Balloon loans are short-term loans, usually 5, 7 or 10 years, often with
lower interest rates, but only a piece of the borrowing amount is paid off
during the term of the loan. At the end of the term, the remaining balance
can be paid off in a lump sum or the loan can be refinanced, if the lender
allows it.
