1. Fixed Rate Mortgages

"Fixed Rate Mortgages" have a set interest rate that does not change over the life of the loan. This means a borrower's monthly principal and interest payment is fixed for the next 30 years or however long the borrower keeps the loan. If interest rates are expected to increase in the future, a fixed rate mortgage may be a borrower's best option.


2. Adjustable Rate Mortgages (ARM's)

"Adjustable Rate Mortgages" (ARM's) are linked to an index and change as the index rate changes. A 5 year ARM, for example, starts as a fixed rate loan and then converts to an adjustable rate after 5 years. Adjustable rate loans have more risk due to the possibility that the interest rate could increase. However, because a borrower is assuming some of the risk, the lender will generally reward the borrower with a lower interest rate. These loans are of particular benefit to borrowers who plan to sell their property before reaching the adjustable period. If a borrower knows for sure that he or she will not be in a particular property for more than a few years, an adjustable rate mortgage may be worth considering. However, we'd recommend being very cautious when considering an adjustable rate mortgage.


3. Interest Only Mortgages

"Interest Only Mortgages" are a good means of either increasing home purchasing power or maximizing a borrower's flexibility to control cash flow. A borrower can save significant amounts of cash for investment, savings, or other expenditures during the first ten years of the loan. If a borrower has a high amount of credit card or other consumer debt, it may make sense to pay down the higher interest rate debt first and then start working on the house. With these loans, the minimum payment required covers interest only. The borrower decides how much, if any, of the principal to repay each month.


4. Reverse Mortgage

"Reverse Mortgages" are special loans used to convert the equity in a home into cash, usually paid out in monthly installments over time. The money obtained is often used to provide senior citizens with financial security in their retirement years. To qualify for a reverse mortgage in the United States, the borrower must be at least 62 years of age. Once the reverse mortgage is put in place, there are no restrictions on how the funds are used. A reverse mortgage is a good option for an elderly person with little monthly income but a significant amount of equity in a home.