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Whether you have a first mortgage, second mortgage or are refinancing your existing mortgage, the terms of your home loan are an extremely important consideration. The terms of your mortgage generally determine how much interest you pay and the amount of time it will take to pay off the loan — typically 15 or 30 years. The most common loan terms include:

Fixed-Rate Mortgages
A fixed-rate mortgage is a home loan option with an interest rate that’s fixed — in other words, it does not change for the life of the loan. These mortgages have the
same payment every month and protect you from rising interest rates.

Adjustable Rate Mortgages
Adjustable Rate Mortgages (also called ARMs) offer an interest rate that changes periodically — typically every six months to a year, depending on your personal loan terms. One great benefit of ARMs is that they usually start off with a lower interest rate than fixed-rate mortgages. The drawback is that the rate does fluctuate. So if rates are going up, your ARM rate — and therefore, your payment
— will likely, too.

While many informed borrowers use ARMs as a versatile financial tool, this loan program may not be right for everyone. There are many benefits associated with this loan, but it is very important that you understand the risks as well.

Interest-Only Mortgages
An interest-only mortgage allows you to pay only your home loan’s interest charges each month for a designated amount of time. After that period of time is up, your
mortgage payments will include both interest charges and a portion of your balance (called the principal). This usually means a much higher payment.

Many homeowners like the flexibility of interest-only mortgage loans because paying only the interest on the mortgage, means they can reduce their monthly mortgage payment and have more funds available for other needs.

The interest-only loan does not come without drawbacks. While many informed borrowers may find the interestonly loan to be a versatile financial tool, this loan program may not be right for everyone. There are many benefits associated with this loan, but it is very important that you understand the risks as well.

An obvious advantage of the interest-only loan is that your minimum monthly payments are lower. However, you need to think carefully about always paying just the minimum interest-only payment since it will result in your principal loan balance staying the same, that is, it will not go down. This could be dangerous if your home does not appreciate in value or actually depreciates in value because you could then owe more than your home is worth. So before choosing an interest-only loan, it is important to consider how your situation will change:

• Will you sell after the interest-only period?
• Do you expect to have a higher income after the interest-only period?
• Will you plan to refinance before the interestonly period ends?
• Do you live in an area where homes are appreciating or depreciating?

Hybrid Mortgages
A hybrid mortgage (sometimes called a two-step or combination rate mortgage) is a combination of a fixedrate mortgage and an adjustable rate mortgage (ARM). The initial rate on a hybrid may be fixed for the first three, five, seven or 10 years of the loan period.