What Are the Various Types of Mortgages?
A fixed-rate loan has an interest rate that stays the same during the term of the loan. This means that your loan payments will remain the same — that is, they are fixed — for the entire term of the loan. Fixed-rate loans offer stability in fluctuating market conditions and the comfort of knowing exactly how much your housing payment will be.
Adjustable-Rate Mortgages (ARMs) are home loans with interest rates that can change periodically. They frequently have an initial interest rate lower than that of a fixed-rate loan. After that initial period, the interest rate may be adjusted periodically based on an index that reflects changing market interest rates. Since your payment may go up or down with interest rate changes, your future monthly payments may be uncertain. ARMs therefore carry risks in periods of rising interest rates, but can be less costly over the long run if interest rates go down.
A mortgage in which your payments only cover the interest that accumulates on the loan balance. In other words, the loan balance does not decrease with the payments. Usually the interest-only payments last for a limited period, after which payments amortize and the borrower begins paying principal in addition to interest.
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