Types of Mortgages

If you’ve done your homework on mortgages, you know the history, and you probably already know there are several different types of mortgages available to you. Generally speaking, mortgages are all loans that let you pay off the cost of your home over a long period of time. Where they differ most greatly is how long you have to pay them off and the amount of interest tacked on. If you aren’t exactly sure about the different types and the advantages that each provides, be sure to read up about them here. We here at Red Hot Mortgage are determined to get you the best mortgage rate possible on any type of mortgage!

Adjustable Rate Mortgage: An Adjustable Rate Mortgage or ARM provides a fixed interest rate initially, but changes over time based on the index and market value. The rate only changes during certain periods of time every several years, referred to as the adjustment period. The initial fixed interest period can be shorter than a year and is usually less than five years. Adjustable rate mortgages usually have lower starting interest rates than fixed rate mortgages, but are often higher by the end of the loan’s life.

Still confused? Did you check out our list of mortgage terms and definitions?

Balloon Mortgages: Balloon mortgages are similar to fixed rate mortgages because they have a fixed interest rate for a period of time, except that the entire balance is due at the end of the mortgage. These mortgages usually only last for about seven years and are sometimes seen as a short term fix for people that cannot get approved for a fixed rate or adjustable rate mortgage. Generally, you wouldn’t apply for a balloon mortgage unless you knew you could pay off the balance when it’s due, otherwise you could face foreclosure on your home.

Convertible Mortgages: Not offered by all lenders, but a convertible mortgage allows you to convert an adjustable rate mortgage in to a fixed rate mortgage. The chance to convert the mortgage may come only once during the life of the mortgage and may carry some additional fees for converting.

Fixed Rate Mortgage: A fixed rate mortgage carries an interest rate that will stay the same forever, no matter how long the length of the mortgage. This means your rate will never go up, however, lenders usually require a higher interest rate from the start to accommodate for this. Fixed rate mortgages are typically the most popular, although they do require you to have a good credit score and responsible financial history.