what types of home loans are available and what are the advantages of each?
Fixed Rate Mortgages: Payments remain the same for the life of the loan
Types
15-year
30-year
Advantages
Predictable
Housing cost remains unaffected by interest rate changes and inflation.
Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits
Types
Balloon Mortgage- Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)
Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan
ARMS linked to a specific index or margin.
Advantages
Generally offer lower initial interest rates.
Monthly payments can be lower.
May allow borrower to qualify for a larger loan amount.