A fixed rate loan is a loan where the interest rate and monthly payment remains the same for the entire term of the mortgage. Fixed rate loans give borrowers the security of knowing exactly what they are going to pay.
An adjustable rate mortgage (ARM) is a mortgage whose interest rate fluctuates according to a specified index. Generally used as the index is the 1 year T bill. The lender will charge the current interest rate plus a predetermined margin. Initial ARM rates are often offered at low "teaser," rates, but continue to increase and over the life of the loan may be the more expensive option. To protect the borrower however, ARMs are often regulated so that there are "caps" as to how high the rate can go and limits as to the amount of times the rate can change in one year and over the life of the loan.
Hybrids are a form of ARM loans that allow you to choose each month what you would like to pay, an interest only payment, the minimum payment amount or your regular principal and interest payment. You can make an accelerated payment as well.
Interest only loans - allow you to pay only the interest of the loan each month for the first several years of the loan. While these loans offer lower monthly payments, however, eventually the loan balance will have to be repaid. Most interest only loans are adjustable, however they can be fixed rate loans as well.
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