Home Mortgage Basics
Fixed Rate Mortgages
Fixed rate mortgages are mortgages where the interest rate on the home loan is set at a fixed amount. Fixed rate mortgages are the most common of home loan types and are usually for periods of fifteen to thirty years, although there are shorter and longer loans. Payments are usually based on the amount of the loan, the length of the loan and the interest on the loan.
Usually a fixed rate mortgage has a higher interest rate on the loan when compared to an adjustable rate mortgage because the lender has to calculate fluctuations in possible future interest rate changes. Basically, this means that a lender has to start you out at a higher interest rate than say, an adjustable rate mortgage, because interest rates 20 years down the road may not be as profitable for the lender, so for him this is a little more risk.
There are many helpful financial websites that provide online tools where you can compare mortgage types. You can compare a fixed rate mortgage by providing details to the type and amounts of the various loans. You enter all the details and these online tools and financial calculators will give you the information you are looking for.
Adjustable Rate Mortgages
Adjustable rate mortgages are mortgages where the interest rate on the home loan is not set and changes throughout the length of the loan. Adjustable rate mortgages have fluctuating interest rates on the loan, that alleviates some of the risk of the lender, as far as possible interest rate changes in the future. With this type of mortgage you assume a little more of the risk of changing interest rates in the future, (they can go up or even down) so the lender usually loans money at a lower interest rate, at first. This type of loan is often referred to as an ARM loan.