Types of Mortgages
Fixed-rate: A loan with a set (fixed) interest rate, for a specific length (most common is 30 years). The monthly mortgage payment (of principal and interest) does not change during the life of the loan.
Adjustable-rate: Sometimes called an Adjustable Rate Mortgage or, simply, an ARM. The loan’s interest rate is adjusted up or down, depending on current interest rates. The monthly mortgage payment (of principal and interest) goes up or down with these rate changes. "Interest Only" loans are in this category.
The typical monthly mortgage payment is made up of:
The sum of these costs makes up the PITI (Principal/Interest/Taxes/Insurance) payment.
Most home buyers, on average, put 5-15% down, but there is no “set” amount. Some down payments are as high as 25% or more, and some are 0% (some VA loan types). Each borrower’s circumstances are different, and the consideration of “how much down payment” should be evaluated with a loan professional, in light of closing costs (generally 2-5%) and any other fees necessary to secure and complete the loan process.
Whether you have a specific home in mind or just want to know the maximum amount you qualify to borrow, “prequalifying” for a loan is simply the first step in securing a mortgage loan. During this process, a lender reviews your income, debt and basic credit history. The pre-approval or prequalification letter you receive becomes an official approval and qualification only after all information is validated and after a favorable appraisal of the property the loan is for.
For more mortgage definitions, please see our Mortgage Glossary.
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