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Weigh Your Options

Fixed rate and adjustable rate mortgages are the two main types of mortgages, but there is a wide variety of other mortgage products available. Below are pros and cons of just a few of the mortgage products you may want to consider.

Type of Mortgage

ProsCons
Fixed-rate mortgageNo surprises The interest rate stays the same over the entire term, usually 15, 20 or 30 years.If interest rates fall, you could be stuck paying a higher rate.
Adjustable-rate (ARM) or variable-rate mortgageUsually offers a lower initial rate of interest than fixed-rate loans.After an initial period, rates fluctuate over the life of the loan When interest rates rise, generally so do your loan payments.
FHA (Federal Housing Administration) loanAllows buyers who may not qualify for a home loan to obtain one Low down payment.The size of your loan may be limited.
VA loanGuaranteed loans for eligible veterans, active duty personnel and surviving spouses Offers competitive rates, low or no down payments.The size of your loan may be limited.
Balloon mortgageUsually a fixed rate loan with relatively low payments for a fixed period.After an initial period, the entire balance of the loan is due immediately This type of loan may be risky for some borrowers.
Interest-onlyBorrower pays only the interest on the loan, in monthly payments, for a fixed term.After an initial period, the balance of the loan is due. This could mean much higher payments, paying a lump sum or refinancing.
Reverse mortgageAllows seniors to convert equity in their homes to cash; you don't have to pay back the loan and interest as long as you live in the house.Subject to aggressive lending practices and false advertising promises, particularly by lenders that prey on seniors. Check to make sure the loan is Federally insured.