Here Are 5 Types of Mortgages
By Andy Miofsky, Illinois Consumer Law Attorney on Oct 4, 2009 in Interest and Fees, Mortgage Issues
Adjustable Rate ARM: This loan features a lower rate at the beginning of the loan with periodic adjustments, typically 6 months or one year, based on the moving London Interbank Offered Rate LIBOR. Many ARM loans contained artificially low teaser rates that kicked in addition to the LIBOR reset rate.
Fixed Rate: The most common form of mortgage is a traditional 30 year fixed rate mortgage. This mortgage has a level payment of principal and interest over the life of the loan. An escrow account for taxes and insurance may cause the payment to change from year to year.
A Hybrid loan combines characteristics of the ARM and Fixed Rate loans. The loan may be fixed for a set period of time, say 3 or 5 years, and adjustible, as an ARM, for the remaining balance of the 30 year term.
Payment Option loans give the borrower a choice each month on how much to pay. The payment could range from principal and interest and more, to principal and interest based on a typical 30 year amortization, to payment of the interest only or merely a portion of the interest.
5 Year Interest Only loans require payment of interest only for the first 5 years, then the loan resets into a 25 year amortized payment of principal and interest. Many of these loans were written in 2005 during the real estate housing bubble. The reset on these loans will hit sometime in 2010 and then will require monthly mortgage payments that include principal along with the interest.
Elizabeth Razzi discusses each of these mortgages in depth at Bankrate.com in an article titled Mortgage Loan Choices Abound.
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