If you want to buy a new house, it is advisable that you search around a bit before you decide on taking out a mortgage. This is because mortgage is a secured loan which you have to pay back within the term of the loan. If you fail to do this then your house will be foreclosed. Thus not only will you lose your house, you will also lose the money you had paid till date on the mortgage. Thus you should be careful while taking out mortgage loans. It is better that you become acquainted with the basic category of mortgages in order to take out the one most suitable for yourself.

1. Fixed rate mortgage – The traditional mortgage loan that is widely accepted as the easiest to deal with. In a fixed rate mortgage, you take out a mortgage loan with a particular rate of interest which is the interest rate that you have to pay for the rest of the term of the loan. The good thing about this is that you get stability of finances as you know how much you have to pay every month and it won’t fluctuate. However, if the market rate falls really low, you can’t take advantage of it and have to go on paying at the old interest rate.

2. Adjustable rate mortgage – This is the alternative of fixed rate mortgage (FRM). In an adjustable rate mortgage (ARM) you can take out a mortgage loan at a very low interest rate initially. The rate of interest thereafter keeps following the market interest rate. The downside of ARM is that it does not offer you any stability of finances. Since the interest rate depends upon the market interest rate, you have to make different amounts of mortgage payments different months.

3. FHA loans – If you have income that is not very high or don’t have a good credit report for which you are not getting a mortgage at suitable terms then you can go for FHA mortgage loans which are guaranteed by the government. The criteria required for FHA loan are quite relaxed and you can get it even with a low credit score. Also, you have to make a lower down payment, usually 5% when it comes to an FHA loan.

The above are three basic categories of mortgages. There are other kinds of mortgages too which lenders give and you can get to know about them by approaching the individual leders.