Home > Mortgages > 5 Kinds of Mortgages: What’s Right for You?

Comments 0 Comments

Home buying can be a whirlwind and, unless you are a lottery winner or heir to a fortune, likely includes taking out a mortgage. Choosing the right mortgage loan for your budget includes assessing your income, lifestyle, credit history and qualifications. But it’s not just a matter of finding an affordable option – it’s also finding the best fit. Here is a list of common borrowing options so you can be an educated home buyer.

1. Fixed-Rate Mortgage

With a fixed-rate mortgage, your interest rate stays the same through the life of the loan. Whether you pick a 10-, 15-, 30- or even 50-year option, the interest rate remains static throughout the entire term. This is a very common option because homeowners can predict the payments without worrying about different charges or inflation. It makes it easy to budget for the long-term — your home payment stays the same year after year.

2. Adjustable-Rate Mortgage

With ARMs or variable-rate mortgages, monthly payments are adjusted at specified intervals based on the interest rate as well as market trends. This option usually offers a lower initial rate of interest and is easier to qualify for. Rates can fluctuate drastically, and can result in rising payments over the life of the loan, which is why this type of loan is considered riskier. Most ARMs have an interest ceiling so you know the maximum payment you could possibly have to make. When deciding on this option, it’s important to make sure you can afford the mortgage payment even if it hits that ceiling.

3. Federal Housing Administration Loan

FHA loans are insured by the government and allow buyers who may not be able to qualify for a home loan to obtain one with a low down payment. First-time homebuyers often find the FHA loans ideal because the requirements are easier to meet.

4. VA Loan

This government loan is available to veterans and spouses of deceased veterans that served in the U.S. Armed Services. The requirements vary depending on years of service and type of discharge. The main benefit is that the borrower does not need a down payment, but the size of the loan may be limited.

5. Interest-Only Mortgage

With interest-only loans, monthly payments are applied only toward the interest for a set period of time. The rate can be fixed or adjustable and the borrower’s payments change drastically after the interest-only period (usually 5 to 10 years) ends and payments grow to include both principal and interest rates. This option keeps expenses lower at the beginning of home ownership and leaves the chance to refinance later on.

Before you even begin shopping for a home, it’s important to know where your credit stands, as better credit will get you more affordable rates. You should check your annual free credit reports for any errors or problems that are hurting your credit, and you can use a site like Credit.com to monitor your credit scores for free. Then, it’s a good idea to take extra care and pick the right mortgage for you for this long term investment. Once you have reviewed the different options, worked with the bank to sort the best possible loan, and moved into your home, it’s important to stay on top of payments. Paying off your mortgage may seem a burden, but helps you build your credit and work toward financial freedom.

More on Mortgages and Homebuying:

Image: AlexRaths

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team