Mortgage Shopping: Why are there So Many Kinds of Mortgages?
Contrary to certain beliefs, I do NOT think it’s a conspiracy to take your home. I really think these mortgages came up because of the needs of various borrowers. Case in point: some of us cannot prove our income because we don’t get W-2s from our jobs. Many self-employed business owners have to get stated income loans, typically carrying a higher interest rate. Certain landlords for example might prefer interest only loans for their rentals to create a cashflow where there couldn’t be one with a fixed 30 year loan.
So how many kinds are there? You would have to ask someone specializing in mortgages that question. The following are the most common:
30 year fixed - loan amortizes (prinicipal and interest) over 30 years - payments remain the same.
15 year fixed - loan amortizes over 15 years - payments remain the same.
Hybrid - typically a combination of fixed and adjustable. Usually fixed for 3, 5 o 7 years.
Interest Only - monthly payments only include the interest, principal remains the same.
Option ARMS - interest is adjustable and borrowers can choose to pay one of four payment options; if they choose the lowest, the principal and interest part that is not paid is added to the loan, thus leading to negative amortization where the mortgage amount goes up instead of down.
