Fixed-rate mortgages

These have traditionally been the most popular type of mortgage in America. They are typically taken out over a 30-year period, but lengths of 15 to 25 years are also available. The interest rate and monthly mortgage payment on a fixed-rate mortgage remains the same throughout the entire life of the loan. The main advantage of a fixed-rate mortgage is that the borrower knows exactly what their monthly costs will be until the entire mortgage has been completely paid out. The main disadvantage is that the borrower pays a premium for this guarantee in the form of slightly higher interest rates.

Adjustable Rate Mortgages or ARM

These Loans offer the opportunity to take advantage of a changing market. The interest rate on an ARM loan varies periodically as interest rate conditions change. Because the interest rate fluctuates, the initial rate on an ARM is lower than a fixed rate mortgage. When it comes to ARMs there's a basic rule to remember...the longer you ask the lender to charge you a specific rate, the more expensive the loan.

Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)

These increasingly popular ARMS -- also called 3/1, 5/1 or 7/1 -- can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25 years. It's a good choice for people who expect to move (or refinance) before or shortly after the adjustment occurs.

Interest Only Loan

A mortgage where regular payments (usually monthly) only meet the interest requirements. The interest rate is usually variable and linked to prevailing rates but can be fixed for a given period. The capital amount outstanding remains approximately the same and the borrower will need to make additional provision for repaying this amount at the end of the term of the loan.

FHA (Federal Housing Administration) Loans
HUD (Federal Housing and Urban Development agency) insures mortgage loans to help people buy or refinance their current homes with a low down payment. HUD does not make loans directly, so you need to apply through a local HUD-approved lender (bank, mortgage company, or savings and loan). There are a number of HUD loans available, so consult with your lender to determine which program is right for you. If you meet certain credit qualifications, you may be eligible for an FHA loan that has a down payment of only 3 percent. In contrast, most conventional loans require from 10 to 20 percent as a down payment. You can also roll your closing costs and fees into the mortgage. FHA loans are available in urban and rural areas for single-family homes and for 2-unit, 3-unit, and 4-unit properties.

VA Mortgages
If you are currently in the United States military, or if you have ever served in the U.S. armed forces, you may be eligible to get a loan guarantee by the Veterans Administration (VA). If you qualify, this special government benefit to veterans might be a good option for you as it allows you to purchase a home with a low down payment.

Reverse mortgages

Reverse mortgages are popular with elderly people who borrow against their house. The lender pays them tax-free money each month, and then takes the house in payment at a designated time. But be careful: Reverse mortgages are typically a much better deal for the lender than the borrower. And they are very risky.

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