There are four basic types of mortgages:

Fixed-rate: Fixed rate mortgages are available in 10, 15, 20, 25 and 30 year terms. This product provides a fixed principle and interest payment that is known and does not change.

Adjustable-rate: This type of mortgage provides a rate that is fixed for an initial period of time. ARMS are available with an initial fixed rate of 3 years, 5 years, 7 years and 10 years. After this initial fixed rate period, the loan can adjust based on a pre-determined “index” and “margin”. The rate you will pay at the time the loan adjusts is calculated by adding the index to the predetermined margin. This type of loan has a “cap” which is a maximum amount the rate is able to increase. The most commonly used index is the 1-year LIBOR as published at www.bankrate.com.

Convertible mortgage loans: These are ARM loans that allow you to convert to a fixed-rate loan at or before a specified time. The conversion loan allows you start off with a low variable rate and lock in when fixed rates go down.

Balloon mortgage loans. This type of loan typically has an interest-only payment that is amortized over 30 years; however, what makes it unique is that while the payments may be based on a 30-year term, the actual term is less. A balloon mortgage allows you to minimize your monthly payments until you refinance the loan.