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Different Kinds Of Mortgages When it comes to getting a loan for your new home, you will have many choices depending on what is most important to you. Below you will find a brief description of some of the most common types of mortgages available today.
Adjustable Rate Mortgage (ARM)
An ARM is a loan that begins with a fixed interest rate for a specific timeframe, and then converts to an adjustable rate mortgage for the remainder of the loan. The fixed interest rate portion can range from as short as 1 month, and go all the way up 10 years. Every ARM is different when it comes to the length of the fixed rate period, how frequent the rate can change thereafter, and how much the rate can change at each adjustment. ARMs will typically carry a lower interest rate than a comparable fixed rate mortgage.Fixed Rate Mortgage
A Fixed Rate Mortgage has an interest rate that stays the same for the life of the loan. The interest rate is typically a little higher than the starting rate for a comparable Adjustable Rate Mortgage. However, the rate will not change. Fixed Rate Mortgages are most often for a 30 year term, but 20, 15 and 10 year terms are also common.
Interest Only (IO)
With an interest only loan you are paying only the interest amount on the mortgage itself. With each monthly payment, you do not pay down the principle balance of the mortgage. All interest only loans will be based on a 30 year term, but how long you are able to make interest only payments will vary from 1, 2, 3, 5, 7, or 10 years. After that period the interest only loan will convert over to an adjustable rate mortgage.
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