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1. Fixed Interest Rate
A loan with a fixed interest rate is one of the most commonly used mortgages in the world. As the name implies, this type of mortgage is going to give you a fixed interest rate over the life of the loan. With this type of loan, you are going to borrow a certain amount of money and have a fixed payment over the entire term. Your payment is going to be the same, but you are going to start paying more principal and less interest over the years. For example, on a 30-year fixed-rate loan, at the beginning of the loan, you might pay $50 in principal and $950 in interest. By the time you are getting close to the end of your 30 years, you are going to be paying $950 of principal and $50 of interest every month.
2. Adjustable-Rate Mortgage
Another type of mortgage that you could potentially get is the adjustable-rate mortgage. With this type of loan, your interest rate can fluctuate from one year to the next. The interest rate on the loan is going to be tied to the movement of a financial index. If that index moves up, your interest rate on the loan is going to move up also. If the financial index decreases, your interest rate is going to decrease as well. With this type of loan, you can typically get a cheaper interest rate at the beginning of the term. However, this type of mortgage can be very risky because you have no control over what your payment could be from one year to the next.
3. Interest-Only Mortgage
Another option for you is the interest-only mortgage. An interest-only mortgage allows you to make payments that are equal to only the amount of interest that is accruing on your loan. With this type of mortgage, you will not have to pay anything towards the principal that you have borrowed. At the end of the interest-only mortgage term, you are going to have a large balloon payment that you are going to have to address. This balloon payment will be equal to the amount of money that you borrowed if you pay only interest with each payment. With this type of mortgage, you want to be very careful. If you do not pay any more money than you are required to pay, you are going to be left with a huge balance at the end of the loan. This will require you to refinance the mortgage, sell the house or lose the property in order to address this payment. Your best bet is to pay more than you are required to pay with each payment.
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