If you are planning to take out a loan in order to purchase a home, you may think there is only one type of mortgage available. Generally one does not hear people discussing about taking out a specific type of mortgage. The reality is that there are several different types of mortgages available, though the majority of buyers do take out what is referred to as a fixed rate mortgage. When it comes to selecting the type of loan that is right for you having additional knowledge about these types of mortgages and their positives and negatives is a must. Here’s a look at a few of the other types of mortgage loans that are available.

Also known as NINJA (No Income, No Job and No Assets) or liar loans, or Alt-A loans, these loans are given out without requiring the buyer to meet many requirements. These loans are quite lucrative for mortgage brokers because of their extremely high fees and interest rates. At the same time, these are very risky loans to make since the borrower does not have to provide any proof that he or she can actually repay the loan. It is also not a good choice for you because of the high fees and interest rates that are associated with the loan.

You only pay the interest fees for the first 5 to 10 years when opting in for a balloon loan. You have to pay off the loan balance in one lump sum after this period of time is over. This type of loan is primarily meant for those who do not plan to stay in the home for very long, as the intent is to sell the home before the lump sum comes due so the borrower has the money needed to pay the loan off. It goes without stating that the borrower will not build equity with such loans unless home prices increase significantly in the area after making the purchase. A person who takes out a balloon loan can be in a very difficult situation if the value of the home goes down when it is time to sell despite the fact that this type of loan may sound pretty nice because of the low monthly payments.

Another option is to take out a loan that covers 80% of the purchase price of the home as well as another loan that covers the other 20%. The smaller of the 2 loans is then used as the down payment, which means you are actually borrowing the full amount of the loan. As a result, you may actually find yourself owing more on the home than it is worth if the value of the home drops.

An ARM or Adjustable Rate Mortgage loan is loan with a variable interest rate that changes according to current interest rates. When interest rates are down, this can translate into a substantial savings for borrowers when compared to those with fixed rate loans. However, when the interest rates go up, borrowers with an ARM loan may face a significant increase in their monthly payments that may be difficult to pay.

These are some of the options available to you. Despite the potential benefits associated with these types of loans, they all come with risks as well. It is therefore easy to see why so many choose to go with the traditional fixed rate mortgage in order to avoid these risks.

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