Not only should you compare lenders for the "lowest" interest rate, but also for the most favorable mortgage conditions.
Read on to learn how different types of mortgages you can choose from.
Your interest rate on a fixed-rate mortgage will not change throughout the term of the loan (i.e. five, ten, 15, 20, 25, 30, or 40 years).
Because the lender is more at risk if interest rates rise over the duration of your mortgage, the interest rate is typically greater than on other kinds of mortgages. As a result, the lender has included a little buffer in the fixed-rate mortgage.
From the first to the final payment, your mortgage payment will be the same. The most conservative payment option is a fixed-rate mortgage.
The adjustable-rate-mortgage rate may “adjust,” as the term suggests. Adjustable-rate mortgages often have lower interest rates than fixed-rate mortgages.
Variable rate mortgages are another name for adjustable-rate mortgages. A variety of adjustable-rate mortgages are available.
The interest rate on a one-year adjustable-rate mortgage (ARM) will vary or change every 12 months, for example. The interest rate may increase, decrease, or remain the same.
The hybrid mortgage is another kind of adjustable-rate mortgage. This adjustable-rate mortgage has a fixed rate for three, five, seven, or ten years before switching to a one-year adjustable rate.
The benefit of this mortgage is a consistent, predictable monthly payment that is fixed for a certain period of time (e.g., 3, 5, 7, or 10 years) before the interest rate changes.
A balloon mortgage is a home loan with a fixed monthly payment for a certain period of time, typically five or seven years, after which the loan balance is due.
When a debt "balloons," the borrower has two options: pay off the amount or refinance it.
» LEARN MORE: Anytime Estimate's guide to balloon mortgages
A bi-monthly mortgage is one in which half of the monthly mortgage payment is made twice a month. The total interest paid to the lender is reduced when a loan is paid in two installments.
In this type of mortgage, one-half of a biweekly mortgage payment is made every two weeks.
If your monthly payment is $500, for example, your 12 payments will total $6,000 (12 weeks x $500 = $6,000).
The bi-weekly payment schedule results in 26 payments per year (26 weeks x $250 = $6,500). The additional money each year helps to pay down the mortgage more quickly.
Interest Only Mortgage
If the monthly mortgage payment does not include any principal payments, the mortgage is considered "interest only. The loan balance stays unchanged if the payment is just interest.
» LEARN MORE: Anytime Estimate's guide to interest only mortgages
More Expert Tips From Anytime Estimate
- Did you know that your interest rate is determined by your credit score? Learn more!
- What exactly is a rate lock? What is the maximum amount of time you can "freeze" an interest rate? Learn more!
- Did you know that you can use discount points to "buy down" an interest rate — and the seller is permitted to pay those points? Learn more!