Mortgage Page

The mortgage industry isn't one-size-fits-all. In order to find the right loan, you've got to understand all the different options:

1. Fixed Rate Mortgages
They're the most popular loans -- with 70% of U.S. homeowners taking advantage of them. As the name implies, the rates on these mortgages are locked in when your application is approved, and they stay the same until your loan is paid back or until you refinance. No matter what the nation's mortgage rates do, your monthly payments will always be the same.
There is a little bit of variety in fixed rate mortgages, though. Yours can either be a 30-year or a 15-year mortgage.

2. Adjustable Rate Mortgages
Like fixed rate mortgages, adjustable rate mortgages come with both 30-year and 15-year options. But unlike fixed rate mortgages, these loans come with rates that change, depending on what the market does. As a result, your monthly payments will change throughout the duration of your loan.
However, your payments may not change every month. In most cases, you'll have an adjustment period where your rate isn't allowed to change. Then, when that period ends, the rate changes. The length of your adjustment period will depend on your specific contract.
Adjustable rate mortgages are great when rates drop, because you'll save money that you couldn't have with a fixed rate mortgage. And, luckily, many of these mortgages come with caps that prevent your rate from getting too high. Some even come with a lifetime cap -- which means your rate can never go past a certain point for the entire length of your loan.

3. Hybrid Mortgages
Technically, hybrids are considered adjustable rate mortgages, but since they work a little differently, they're given their own category. The most popular hybrid mortgages are:
- 5/5 Mortgages
With these loans, your rate will stay the same for the first 5 years. Once you hit your 6th year, your rate will be adjusted every 5 years.
- 5/1 Mortgages
Under the terms of these loans, your rate will stay the same for the first 5 years. Then, it will be adjusted once a year.

There are also 3/3, 3/1, and 10/1 mortgages that work the same way.
Hybrid mortgages are great for people who don't plan on living in their homes for very long. That way, they can take advantage of lower rates in the beginning, then sell before the rates change.

4. Balloon Mortgages
Similar to fixed rate mortgages, balloon loans don't change rates as you go along. However, unlike their fixed rate counterparts, they come with a big "balloon" payment at the end.
These loans are great if you can afford a big lump payment because you'll get to take advantage of lower rates the rest of the time. However, lots of people get into trouble with balloon mortgages because they can't afford the big payment at the end. In fact, balloon mortgages played a big role in the housing bubble burst of 2007. When people couldn't afford their balloon payments, they went into foreclosure.

5. 2-Step Mortgages
Like the name suggests, these loans come with one rate for the first part of the mortgage, then change rates for the second part. Typically, these mortgages are popular with people who plan on selling their home before the second part begins.
If you decide to stick around for the entire duration of your loan, you might be able to get a fixed rate for the first part of your mortgage, then switch to an adjustable rate for the second part.

6. Government Mortgages
These loans are backed by the federal government. In many cases, you have to meet certain criteria to qualify -- like VA loans for service members or USDA loans for people who live in rural areas.
However, the FHA loan has become the most popular because it combines private lenders with the government. The money comes from a private lender, but is insured by the Federal Housing Administration. That way, if you default, the FHA pays your lender. FHA loans are designed for people who have bad credit and can't get a private loan on their own.