When it comes to buying a home, you will find that there are several different types of mortgages available to fit every lifestyle. To learn which mortgage is best for you, you will have to take into consideration such factors as your risk tolerance, how long you desire to live in your home, if you want a mortgage with low up-front costs and how much money you need. Here are some of the various mortgages types available to you:

Fixed rate mortgages

Fixed rate mortgages are loans that keep the same interest for the entire life of the loan. The monthly payment, which is the principal and the interest, will stay the same from the very first month of the mortgage loan to the very last payment. The entire amount of your mortgage loan will be divided into equal monthly payments over the length of your loan.

Fixed rate mortgages have their good and bad sides. The longer the length of the loan the more you be paying out in interest. If you have a long-term loan, one that is 30 years or more, you will be paying more in interest than if you had a fixed rate mortgage for a short-term loan, which is for any amount of years fewer than 30 such as a 15-year loan. Your monthly payment will of course be higher with a 15-year loan; however, you will save more in the long run by paying less in interest across the board.

With a fixed rate mortgage loan, you are locked in. Your interest rates will never go up; however, if interest rates go down yours will always remain the same. Having a fixed rate is good for individuals on a fixed income or on tight budgets, because you know exactly what your payment will be each and every month for the entire life of your mortgage loan. In addition, you may be able to re-finance the loan at a lower interest rate if you have enough equity built up and have made your payments on time.

Adjustable rate mortgages (ARMs)

An adjustable rate mortgage is just that. Your interest rate along with your monthly with your monthly payment will fluctuation along with the market. If the interest rate goes up, so will your monthly payment; if the interest rate goes down, so will your monthly payment. With this type of mortgage loan, the life of the loan will remain the same; however, the amount to pay off the entire loan will change as the market interest rates change.

Every time the market interest rate changes your monthly payment is recalculated for the change. If you are on a fixed income, this type of mortgage may end up hurting you if the interest rate goes up and your monthly payment is more than you can afford, however, the interest rate can go down, making your loan even more affordable.

Hybrid ARMs

Hybrid Arm’s are mortgage loans that have a fixed rate for a designated amount of years and then the interest rate changes for the last year of the loan to adjustable. This is a good loan for individuals that are not planning on living in the home for the rest of their lives or only for a certain amount of years before purchasing a different home, such as for those just starting out which are planning to have a family in a few years and will need a larger home. This loans can normally be found in increments of 3/1, 5/1, 7/1, or 10/1 time periods. Normally, the interest rates on hybrid loans are lower than what you find on a 30-year fixed interest rate loan.

Government mortgage programs

Government mortgage programs are loans that are guaranteed by different agencies of the federal government. They offer:

• Offer fixed interest rates that are lower than those offered by conventional loans
• Require little or no down payment
• Use more liberal qualifying guidelines than conventional loans
• Allow the buyer to work with a third party to pay part or all of the mortgage closing costs
• Allow the buyer to finance the closing costs as part of the mortgage balance
• Carry no prepayment penalties

FHA loans

FHA loans (Federal Housing Administration) are comparable to conventional fixed rate loans; however, they are insured by the federal government. With an FHA loan you will have to pay mortgage insurance premiums. The premium is decided on the life of the loan and the size of the down payment. The amount of money you will have to pay for the Mortgage insurance premium (MIP) can be around 2.25% of the amount of money you need to borrow. This initial premium can be included in the loan, depending of certain elements. The yearly MIP will vary from .25% to .5% of the amount of money that you finance which will be added to your monthly mortgage payment. Many times the lender will set their FHA rate below the current interest rate that you can find on conventional loans. You may also be able to have a down payment of around 3% in some instances.

VA loans

VA loans are loans in which the Veterans Affairs guarantees a certain portion of the mortgage will be repaid by the federal government in case you default on the loan. You must be a veteran and qualify for the loan. According to the size of loan you need, the VA loan will guarantee:

• 50 percent of a loan up to $45,000
• Up to $22,500 for loans over $45,000 and not more than $56,250
• 40 percent of loans over $56,250 and not more than $144,000
• 25 percent (to a maximum of $50,750) of loans over $144,000

More than likely, the lending company will offer a VA loan that is equal to four times the amount that the VA is guaranteeing usually with no down payment. This means that a veteran if guaranteed for $50,750 could receive a mortgage of up to $203,000.

Bond-backed mortgages

A bond-backed mortgage is a mortgage loan issued by a city, state, or county government. The government agency will sell the bond to investors and then use the money from the sale of the bond for funding mortgage loans. Normally, the interest rates on these types of loans are lower than rates that are available from other more conventional lending companies. All of the pertinent terms, including eligibility are set by the government agency and can vary from community to community.

Balloon mortgages

A balloon mortgage loan is a short-term loan. The usually term length is 3, 5, 7, or 10 years and the most popular are either 5 or 7 years. You will pay a certain amount of monthly payments and then have a large principal due at the end of the life of the loan. Your monthly payment will be based on a 30-year loan, therefore your payments will be low, and however, at the end of your loan you will have to pay all the money that is left on the loan.

Since the monthly payments are low, many people are interested in this type of loan; however, this loan is not intended for individuals that may not be able to pay the large final payment on their loan. If you would like the option of changing your mortgage before the balloon payment is due, you should look for a mortgage loan that offers a reset feature. This option will allow you to convert your loan to a fixed rate prior to the end of the term of your loan.

Graduated payment mortgages

A graduated payment mortgage has a fixed interest rate through the entire term of the loan. It starts out with low monthly payments that will gradually rise over a 5 to 10 year period and then stay there for the rest of the loans term. This type of loan is normally for a period of 30 years.

Growing equity mortgages

Growing equity mortgage loans are ones that are normally called a rapid-off mortgage. The interest rate is usually lower than other conventional fixed rate loans and the interest rate stays the same throughout the life of the loan. The monthly loan payments usually start at about the same as a 30-year fixed mortgage loan would, but gradually rise over a 5 to 10 period and then stays there for the rest of the term of the loan. The increases can be determined on a specified schedule or on changes that occur in the economy, which will be stated in the contract of your mortgage loan.

What this does is that the extra money you are paying monthly will be applied to your loan’s principal balance, which will reduce the total amount of interest you will pay and will accelerate your mortgage payoff date. You will not receive any tax deduction for long term; however you will be building equity in you home much faster.

Shared appreciation mortgages

Shared appreciation mortgage is one that will give you a low fixed interest rate and you will have to agree to share with the lending company a share of the appreciation of value of your home. This amount is usually in the range of 30% to 50%. This will be a certain time in which you both agree or at the time of sale. The lending company may even agree to make a portion of your monthly payments.

This type of loan agreement may not allow you to borrow against any equity that you have in your home. You may also find that you will have to sell your home to meet the obligation you have to the lending company.

Jumbo loans

As set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, jumbo loans are any mortgage loans that are over $333,700 and are adjusted annually.

Jumbo loans are called nonconforming loans because these organizations will not underwrite them, so it can be more risky business for lenders, which causes the lending company to set higher interest rates than they do for more conventional loans.

Seller-financed mortgages

With a seller financed mortgage, the seller of the home acts as the lending company. You will purchase the home under an installment plan, which means you take possession of the home and pay for it in installments under the terms that you agree upon in the contract. You and seller work out the terms of agreement together and all payments are made directly to the seller. With this of mortgage loan the insurance and property taxes are not included in the mortgage loan payment.

Wraparound mortgages

A wraparound mortgage is similar to a seller-financed mortgage in that you deal with the seller directly. You will make all payments directly to the seller and he will turn around and use a portion of your payment to make the payment on his original mortgage loan for the property. The seller finances all the money that is needed to pay off the mortgage minus any money that you put down to purchase the home. Many times the interest rate will be higher than the rate on the original mortgage; however, it is usually lower than interest rates of other lenders.