ffMortgage loans are one of the largest investments people make. Choosing the right mortgage for your situation will save you thousands of dollars and many future headaches. There are a number of options available when refinancing you home loan; here are the basic types of mortgages to help you choose the right loan for your financial situation.

Fixed Interest Rate Mortgage Loans

The most popular variety of home loan is the traditional 30 year fixed interest rate mortgage loan. This interest rate for this mortgage is fixed, meaning the rate and the payment amount will not change for the duration of the loan. There are many advantages to this for homeowners that need a mortgage payment they can plan their budget around. Fixed interest rate mortgage loans have the least risk of all mortgage products on the market; however, the fixed interest rate you receive will be higher than other types of mortgage loans.

Adjustable Interest Rate Mortgage Loans

Adjustable rate mortgages (ARM loans) come with a variable rate that your lender will adjust to prevailing interest rates and regular intervals specified in your loan contract. The loan you choose will be tied to some financial index, like the prime rate for example, and the lender will add their markup on top of this. Adjustable rate mortgages usually come with an introductory period where the interest rate will be significantly lower than the actual rate. Lenders do this to entice homebuyers into choosing their loan products; if you see a mortgage with a 2-3% interest rate this is only the introductory interest rate. When the introductory period ends the lender will adjust your loan to the actual interest rate and your payment amount will go up significantly.

Balloon Payment Loans

A balloon payment loan is a short term mortgage loan where the entire loan balance is due at the end of the mortgage term. These loans typically have term lengths of five to seven years and come with lower interest rates than longer term loans. These mortgages are useful for real estate investors and other homeowners that need a mortgage for a short term financial need. You can learn more about mortgage refinancing basics, including common homeowner mistakes to avoid by registering for a free mortgage guidebook.