Mortgage Types

One of the most common misconceptions about interest only mortgages is that they are a specific type of mortgage. In fact, the interest-only portion is simply an option that can be attached to almost any type of mortgage. However, that doesn't mean the type of mortgage you refinance to isn't important. At Interest Only Refinance Online, we want to make sure our visitors make the right choice when they refinance. That's why we've included this detailed look at the various types of mortgages available:

Adjustable Rate Mortgage

Over the past decade, adjustable rate mortgages have become increasingly popular, especially among those with less than stellar credit histories. Typically they start out by offering a fairly low interest rate to the borrower. Then after a period of time, anywhere from several months to several years, the loan enters the adjustment period. This is when the loan's interest rate can, and most likely will, increase. Adjustment periods are spread throughout the life of the mortgage, meaning its rate can fluctuate many times. Today, consumers are warned to be careful when applying for an adjustable rate mortgage, as there's no telling how much their monthly payments could increase after several rate increases.

Balloon Mortgage

In some aspects, balloon mortgages can be seen as a combination of both adjustable and fixed rate mortgages. Like fixed mortgages, a balloon mortgage's interest rate does not change for the life of the loan. However, they are similar to adjustable rate mortgages also in that they change during an adjustment period. Only with balloon mortgages, there isn't a rate adjustment; rather it's the entire principal of the loan that will be due. Generally balloon mortgages last for seven years and when that time is up, the balance must be paid. Of course, most people simply cannot afford to pay off that large of a balance, which could easily be over $100,000. Instead they refinance to a different type of mortgage. For most home buyers, balloon mortgages make sense if you're positive that you'll be moving out of the home before it reaches its maturity date.

Fixed Rate Mortgage

The fixed rate mortgage is probably the most highly sought after type of mortgage in the industry, though it is also one of the most difficult to attain. As the name implies, the interest rate on a fixed rate mortgage never changes over the life of the loan. That means you can make the same exact monthly payments from the time you take the mortgage out till the time it's completely paid off. A fixed rate mortgage may have a higher initial interest rate than an adjustable rate mortgage, but as the ARM's rate increases, it will almost certainly surpass that of the fixed rate mortgage. Keep in mind, if you were to take out a fixed rate mortgage with the option of interest only payments, your monthly payments can look very different. Obviously, in months that you decide to pay interest only, your payments will be significantly smaller than during months when you pay on both the interest and principal.