Types of Mortgages - Most Common Types of Mortgages That You Should Know Before You Buy a New Home
By Murugesan Chockalingam

Most common types of mortgages are fixed mortgage,adjustable rate mortgage and balloon mortgage that are available for buying a new home.There are other kinds of mortgages that are not as recognizable by some lenders as distinct types, or may be limited to certain regions or lenders. Buying a new home is a major decision in your life. You should select the right type of mortgage as per your financial situation.You can select the right one only if you understand the type of mortgages available to you. In this article I will highlight the main features of the each mortgage. This knowledge will help you to choose the right type of mortgage.

1.FIXED MORTGAGE

Here the interest rate charged by the bank is fixed.As the interest rate is fixed,you will have a fixed amount of repayment every month.This will enable you to plan your repayment as there is no speculation of change of interest rate/repayment amount. you may choose your repayment period as 15 or 20 or 30 years.The Longer the repayment period, the lower will be your monthly repayment amount.And of course the tax benefits you receive over the course of loan is also more. If you plan to stay longer in your new house,and if you do not anticipate any change in your income, then this is the best type of mortgage for you.

2.ADJUSTABLE-RATE MORTGAGES

Here the bank charges a variable rate of interest,the interest rate changes based on variations in economic trends and market rates.Usually the starting interest rate is lower than that of fixed interest rate.But you can not be sure when the interest rate will change.So you can not plan for your monthly installment.Of course the frequency of adjustment of interest rate will be decided by the terms of your mortgage loan. If you are willing to take a chance-if you think that the interest rate will not vary adversely-then this type of mortgage you can choose.Also if your financial position is such that you can not afford to pay more now but you can pay more at later stages, then this type of mortgage is suitable for you.

3.BALLOON MORTGAGE

Here the bank charges a interest rate that is lower than the typical fixed rate mortgage.This rate remains fixed for a period ranging from five to seven years.At the end of this period, a so-called balloon payment or a lump sum must be paid. This will be your final payment. If you plan to sell the house or avail refinance, before the lump sum amount is due,this type of mortgage is best choice.

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