Fixed Rate Mortgage(FRM)
In a FRM, the interest rate, and hence monthly payment, remains fixed for the life (or term) of the loan. In the U.S., the term is usually for 10, 15, 20, or 30 years (15 and 30 being the most common).- 10 year FRM: A fixed rate mortgage with a 10-year repayment term. Compared to a 30 year FRM, this loan has higher payments, a lower interest rate, and lower interest costs.
- 15 year FRM: A fixed rate mortgage with a 15-year repayment term. This loan has a lower monthly payment than a 10 year FRM and allows you to quickly build up equity.
- 20 year FRM: A fixed rate mortgage with a 20-year repayment term. This loan has lower monthly payments than a 10 year FRM. Compared to a 30 year FRM, this loan has higher payments and a lower interest rate.
- 25 year FRM: A fixed rate mortgage with a 25-year repayment term. This loan has slightly higher monthly payments than a 30-year FRM.
- 30 year FRM: A fixed rate mortgage with a 30-year repayment term. This is one of the most popular home loans. With this type of loan, your monthly payments are lower than with a 10-25 year FRM but your interest costs are higher. Plus, this loan gives you the best tax advantage by having the largest interest deduction. A 30-year FRM is best if you plan to have a steady income and stay in your home for a long time.
- 40 year FRM: This fixed rate mortgage has a 40 year repayment term. A 40 year FRM has a slightly higher interest rate and a slightly lower monthly payment than a 30 year FRM. However, you will end up paying a lot more interest than if you had a 30-year mortgage.
- 80-10-10 Loan: A combination of an 80% loan-to-value first mortgage, a 10% home equity loan, and a 10% down payment. The loans can be used to eliminate the need for private mortgage insurance.
- Convertible ARM: An adjustable rate mortgage that can be converted to a fixed-rate mortgage under specified conditions. This type of loan usually includes a higher rate or more points for the convenience of not having to refinance.
- Option ARM: This kind of adjustable rate mortgage allows you to choose between four payment options each month. With an option ARM, a lender may give you a choice of a minimum payment, interest only payment, a 30 year amortized payment, or a 15 year amortized payment. Option ARMs are best for people who are very organized and who have fluctuating incomes or work on commission. Be aware that the loan's interest rates can fluctuate and that these loans are complicated to manage.
- Graduated payment mortgage: A mortgage where the payments increase each month over a set period of time, usually 5 years. After this period, the last payment is fixed as the monthly payment. This type of loan usually has higher rates and has a rising balance for the first few years. Graduated payment mortgages are available as ARMs or FRMs.
- Interest only mortgage: A mortgage where you only pay interest each month during an introductory period, usually 5-10 years. After this period, you have a set amount of time to pay all the principal and interest. This type of loan is best for people who know that their income will rise in a few years or who believe house prices will increase dramatically.