Most people can't afford to pay the full price upfront for their homes, so there are many different home loans available to future homeowners. Each home loan offers something slightly different, and borrowers need to select the right ones for their individual circumstances.

Fixed Rate Mortgages, Temporary Buy-Downs, and Convertible Adjustable Loans

To begin with, there are fixed rate mortgages, temporary buy-down loans, and convertible adjustable loans. Fixed rate mortgages are loans that are offered at a set rate and payments stay constant. These loans are offered over fifteen, twenty and thirty year periods. The temporary buy-down loan is where a person 'buys down' the interest rate for a temporary reduction. Lastly, there are convertible adjustable loans. In this case the borrower is given the option of changing their loan, at designated times, from an adjustable rate to a fixed rate. This may be a beneficial way to go, because an adjustable rate may be worthwhile if the economy is in a boom, but a fixed rate would protect the borrower from paying extremely high payments or interest rates.

Adjustable Rate and Balloon Mortgages

There are balloon and adjustable rate mortgage (ARMs) loans that are available as well. A balloon loan is a shorter-term fixed rate mortgage. The end result of a balloon loan is that the terms and payments are set at the same level as other loans, but at the end of the balloon loan period (which is much shorter than typical loan periods) the rest of the loan amount is due. If the borrower can afford the final payment, balloon loans may be a great choice because they are often priced better than other loans. People may also decide upon an ARM loan, which is a loan with a fluctuating interest rate and payments. The changing rates are a reflection of the economy, which may benefit or hinder the borrower. People may have an adjustment period or a cap with an ARM loan. An adjustment period is how long the rates and payments will stay fixed, and a cap is how far the rates and payments will fluctuate once the fixed period is over.

Choosing a Home Loan

There are many, many different types of new home loans available. Selecting a loan depends upon how long one wants the duration of loan payments to be, whether or not the borrower prefers fixed or adjusting rates, and how much money a person may have to put toward a down payment or loan payments.