- Standard or traditional mortgages are mortgages with a fixed interest rate. Traditional mortgages usually last for 15 or 30 years. In general, the longer the duration of the mortgage, the higher the interest rate will be. For instance, you might be able to get a 4.5 percent interest rate on a 15-year mortgage or a 5 percent rate on a 30-year mortgage. Despite the higher interest rate, monthly payments on 30-year mortgages tend to be lower, since you pay back the principal (the amount borrowed) over a longer period of time.
- Adjustable rate mortgages (ARMs) are mortgages where interest rates can change over the life of the loan. Some ARMs have adjustable rates for the entire life of the mortgage while other ARMs, called hybrid mortgages, have a fixed rate for a few years, after which the lender can adjust the interest rate. ARMs may be less costly than traditional mortgages in the short term, but they can be more costly in the long term if rates adjust upward.
- A reverse mortgage is a special type of mortgage offered to seniors where a lender gives the senior cash in exchange for equity in a home. The senior with the reverse mortgage may not have to pay back the loan until he moves out of the home or at the time of death. Reverse mortgages are a way that seniors with fixed incomes can raise significant sums of cash to pay for large, unexpected expenses like medical bills and education costs.
- A second mortgage is an additional mortgage taken out on a property after an initial mortgage has been taken out to purchase the property. A second mortgage is similar to a reverse mortgage in that the borrower trades equity to a lender for cash, but it differs in that the borrower must begin making payments to pay back the borrowed sum after taking out the loan like a traditional mortgage.
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