Compare Mortgage Types When Shopping for a Mortgage

The type of mortgage you get is just as important as the mortgage rate you pay. There are several types of mortgage available these days, some mortgages are riskier than others.

When you start your search to compare mortgage rates, also be prepared to compare mortgage types that are available. Current mortgage rates are low so now is a good time to purchase a home or refinance a home loan.

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There are fixed rate mortgages in which you pay the same mortgage interest rate for the life of the loan. There are also adjustable rate mortgages in which the mortgage interest rate is fixed for a certain amount of time then adjusts every year after. Payment option adjustable rate mortgages  are a newer type of mortgage loan which became popular during the housing bubble and caused a lot of trouble for folks who had no idea what they were signing up for when there were buying a home.

The most common mortgage is a fixed rate mortgage. Of the fixed rate mortgages, the most popular and traditional mortgage is a 30 year fixed mortgage. The interest rate stays the same for the entire life of the mortgage loan. Another popular fixed rate mortgage is the 15 year fixed mortgage, your monthly payments will be higher than a 30 year mortgage but you will save tens of thousands or hundreds of thousands of dollars in mortgage interest rate payments by having the loan for half the time.

Other fixed rate mortgages include 10 year mortgages and 40 year mortgages. With a 10 year mortgage your monthly mortgage payments will be even higher than a 15 year mortgage but over the life of a 10 year home mortgage you will save on 5 years of mortgage interest payments.

Just the opposite is true with a 40 year mortgage, dragging your mortgage payments out over 40 years will be costly in the long run. Many people used 40 year mortgages during the housing bubble to buy a home they couldn’t otherwise afford. You can use our mortgage calculator to figure out how much your monthly and total mortgage payments will be.

Other types of mortgages include conforming mortgages and jumbo mortgages.  A conforming mortgage is a mortgage less than a certain dollar amount that a government sponsored entities like Freddie Mac can purchase from bank. The conforming limit varies by the county you live in. A jumbo mortgage is a mortgage loan that exceeds the conforming home loan limit. We have a list of conforming loan limits in every county in the United States listed here: Conforming Loan Limits by County

Interest only mortgages are another type of mortgage product. Interest only payment mortgages were originally designed for people who expected to make lump sum principal payments in the future. Self employed people or people who expected to come into a large some of money in the future would use interest only mortgages as a vehicle to buy a home that was more expensive than they could afford at the time. Monthly mortgage payments are lower because you’re not actually paying down principal until after the initial interest only period. This type mortgage also got a lot of people into hot water during the bubble.

Payment option adjustable rate mortgages are mortgages that were designed to allow you to chose among several payment options each month. You can make a traditional payment of principal and interest, an interest only mortgage payment or a minimum payment which is less than the interest due that month. This type of mortgage is the most dangerous because deferred interest payments cause the total amount you owe on a home to increase every month if you only make a minimum mortgage payment. Ultimately you are paying interest on top of the interest, causing the total home loan to increase.

Deciding which mortgage best fits your needs is a choice you will have to make. There are mortgage brokers and mortgage companies that can assist you with your search. I recommend doing your own research first so you are knowledgeable about the various mortgage products. You can start your search right here, we offer mortgage rate tables and a mortgage search tool which will give you a list of mortgage rates by lenders in your zip code.

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