How many different mortgages are available to me?

Let's say that so many types of mortgages are available right now! What are they? They all start from some basic mortgages and then each bank upgrades them to look more appealing to the customer. Some underwriter will change the mid FICO score to 580 instead of 600 and call it "The American family Mortgage" etc...

Here are the basic mortgages available to purchase a house or to refinance:

1- 30 year fixed: Fixed rate for 30 years and the house if yours. Some banks will let you do 25 and/or 20 year mortgage;

2- 15 year fixed: Fixed 15 year. Some banks will give you a better rate than a 30, sometimes a 0.25% cheaper. Yes it does make a difference on 15 years.

Those might be available Interest Only if your FICO score qualifies. But be careful! As we know it some house markets lost a lot in last year or two and if you were into a Interest Only (I/O) then you might not be able to refinance since the value of your house is now less than what you owe. That means your loan to Value is over 100% and most of the banks don't like it. The I/O is sometimes available for 5 or 10 years, that means you have to start paying principle after that period. The I/O could be good if you owe let's say $100,000 on a $200,000 mortgage (30 year fixed at 6.5%) and you are having a bad year financially, you could save your house! Here's an example:

$200,000 Mortgage 30 year fixed at 6.5%
Monthly Payment: $1264.10

If you refinance $100,000 at 7.5% your monthly payment will be : $625.00 per month. If you have to do this and you do have a few bucks a month, put it on your principal directly!

3- ARM: Adjustable Rate Mortgage, 2-3-5 year fixed and then it goes adjustable. That is a killer if you ask me. If you have a choice, don't do it! Once you go adjustable, your rate can go up 1% to 2% and move every 6 months! That is why the foreclosure rate is so high right now!

4- Pay Option Arm: It is a program many companies uses to get your business. You saw or heard commercials like "1.5% on your next refinance, we can do it!!!". Be careful!

That program offers you 4 ways to pay monthly but the interest rate may change monthly and your payment will change also:

A) Minimum payment, in this case 1.5%. What you need to understand is that the difference in the interest between 1.5% and your current rate will be added to your principal. It is call Negative Amortization! That means every year, you will owe more. Not good!

B) Pay Interest Only

C) 30 Year fixed

D) 15 Year fixed

To me it is primary good for someone buying a house to flip it. You will be fixing that house for 6 months and you will resale it and make a profit. During those 6 months, you will pay the minimum payment and with the profit, you will pay back your mortgage and the negative amortization.

5- The Home Equity Loan: You just borrow some money on your equity to fix the house or pay some debts.

These are the 5 basic mortgages!

Enjoy!