Unless you have enough money to pay for a house yourself, you’ll need a mortgage. A mortgage is a loan you take out to finance the purchase of your home. It is also a legal contract stating that you promise to make a monthly payment until your loan is paid off.
Today, there are hundreds of different programs to choose from, but don’t let that overwhelm you. Most loans are variations of a fixed-rate mortgage and adjustable-rate mortgage.
A Fixed-rate mortgage is a home loan with an interest rate that will remain at a specific rate for the term of the loan. About 75 percent of all home mortgages have fixed rates.
Adjustable-rate mortgage (ARM) is a loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.
Convertible adjustable-rate mortgage A mortgage which starts as an adjustable-rate loan, but allows the borrower to convert the loan to a fixed-rate mortgage during a specified period of time.
- Fully amortized adjustable-rate mortgage A mortgage that amortizes, or pays down, the balance of a loan.
Knowledge of how these mortgage programs work will help you to understand the majority of available loan options. You may qualify for a new loan without even selling your current home. It’s simple to run the numbers for yourself on our Affordability Calculator.