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Buying a house and getting it financed could be a difficult issue if you are unaware of the basics of mortgage loans. Home loan choices are abound in the market making it even more difficult to make a right financial decision. So assess your needs, affordability and your mortgage loan options before you plunge into the market.

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Types of mortgage loans

There are many types of mortgage loans available in the market, enough to confuse the starters. Here’s a guide to some of the basic types of mortgage loans available in the market.

1. Fixed rate mortgage loan – This is the most common type of mortgage loan among the borrowers. Here the borrowers pay fixed interest rates throughout the specified term. However, the interest rates are generally higher here. The usual term of this loan is 15 to 30 years.

2. Adjustable rate mortgage loan (ARM) – In this type of loan, you are required to pay a fixed interest rate only for the initial 5 to 7 years. After the specified initial years, interest rates vary according to market fluctuations. There are also some ARMs that adjust rates monthly or annually without any fixed period of time. With adjustable rate mortgage loans, it is important to note the time interval after which rates would adjust as it could prove to a risky financial practice.

3. Government backed loans – The Federal Housing Administration (FHA) insures mortgage at lower down payment. It is suitable for first time home buyers who are looking for a minimum down payment and also because FICO scores to do matter.

4. Interest only mortgage loans – Here the borrower only pays the interest on the loan. This option is available for only a certain time period. The rest of the amount is generally paid at maturity. This type of loan is generally meant for people with less income.

5. Hybrid mortgage loans – This type of mortgage loans incorporate some of the features of both the fixed rate mortgage loans and adjustable rate mortgage loans. For example, you can get mortgage loans that have a fixed rate for a certain time period and then the interest rates can adjust and changes according to the fluctuating market rates later.

It is better to determine your needs and affordability before you shop around for mortgage loans or else you could have a hard time deciding on the type of mortgage loan that would suit you best.

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