Two of the most popular mortgage types include fixed rate mortgage and adjustable rate mortgages, but there are variations on each so it’s important to carefully analyze your options before making a final decision.
Fixed rate mortgages have one rate that stays the same for a specified time period, typically 15 to 30 years. This is a great mortgage option for people who need their payments to remain stable because the rates are guaranteed for the life of the loan. The only fluctuations will be adjustments for taxes and insurance if they are escrowed.
On the other hand, adjustable rate mortgages reset at different time periods depending upon the terms of the contract and prevailing rates. These adjustments can result in large increases in the monthly mortgage payment, making it difficult for those on a budget. However, adjustable rate mortgages can be a great option for those who expect a large increase in their household income (for example, a spouse who returns to work).
Finally, some mortgages offer fixed rates for a few years and then begin adjusting. This is a viable option for those who need the security and stability of a fixed rate mortgage but who will later be able to afford the flexibility of a variable rate mortgage.