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Understanding the home loans that are available can help you compare mortgage rates and options to find the best fit. We'll guide you through the different types of mortgages.
A fixed rate mortgage means your interest rate never increases, even if rates fluctuate.
Lenders generally offer fixed rate mortgages for 10, 15 and 30 years. The longer your loan term, the lower your monthly payment will be. A shorter loan term may increase your payment but you could pay off your home faster.
Fixed rate mortgages can make budgeting much easier. They're the most popular choice for homeowners, especially those who plan to stay in their home for many years.
With a shorter loan term, your payment may be higher but you're likely to build equity faster.
An adjustable rate mortgage (ARM) has a lower, fixed interest rate for a set initial time period then adjusts to financial market rates for the rest of the loan term. That means your monthly payment can be lower at first but may increase if mortgage interest rates go up.
Since your payments will be lower for the initial period, an ARM may be a good option if you plan to pay off the mortgage or move before the variable part of the mortgage starts.
The most common ARM types are often advertised as 3/1 or 5/1 ARMs. The first number shows how long the fixed interest-rate period will be. The second number shows how often the rate will adjust after the initial period. For example, a 5/1 ARM is fixed for the first 5 years then adjusts every year afterward.