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Fixed-Rate Mortgage

This type of mortgage is classified as such due to its unchanging interest rate throughout the life of the loan. Borrowers often choose this type of mortgage because they prefer a rate that is not subject to rise and fall of interest rate.

Adjustable-Rate Mortgage (ARM)

This type of mortgage is one of which the interest rate changes periodically to reflect variations in a pre-set index. Borrowers choose these loan types due to lower initial interest rates compared to fixed-rate mortgages. ARMs remain fixed for a number of years. After which, they are adjusted every year. ARMs are often capped at a maximum interest rate, thereby protecting its borrowers from extreme rate increases.

The Balloon Loan

This type of loan occurs when one’s amortization period is longer than the loan term. Usually a loan has a term of five years, but it is amortized over 30 years or so to keep monthly payments manageable.

Equity

This is the portion of your property’s value that exceeds the amount of the mortgage or other liens on the property. Equity builds up as your property value increases while paying principal on your mortgage.

Home Equity Loans

This type of loan allows you to borrow money by offering the equity in your property as collateral for the new loan. If the applicant is still paying on the first mortgage, an equity loan is considered a second mortgage.

Lenders offer programs where applicants may take a loan in lump sum and pay it back according to the terms of the program. Applicants may also opt for an “equity credit line” - allowing the borrower more flexibility in loaning smaller amounts as needed.

B and C Loans

Loans that meet the usual standards for credit and property are classified as “A” paper loans. Loans that do not meet these standards are referred to as “B” or “C” paper loans. Due to the perception that lenders incur greater risk on B and C loans, interest rates are pegged higher compared to A loans.