Do the words fixed rate, balloon loan, and adjustable rate mortgages mean anything to you? If they don’t and you are planning to buy a home, then you have to go through a quick terminology lesson. Those previously mentioned words happened to be the three most common types of home loans, so let’s discuss each one of them so as to choose the best mortgage deal.

You will want a fixed rate loan when you are planning to buy a home and stay in it until you pay it off. With this type, you will be given an interest rate that is fixed and will not change for the life of the loan. Now, if interest rates go higher, yours will remain the same however, when interest rates go lower, you are to pay a higher rate.

The second type is the adjustable rate mortgage or the ARM. This loan’s interest rate basically goes up and down with the market so if the interest rate is low, so will yours; and if high, your home mortgage rate will, too. One disadvantage of this type is that the interest rate on a home mortgage loan affects the payments so you will never know what your monthly mortgage payments will be so this type won’t be right for everyone.

For starters, if you are purchasing a house for investment purposes and you plan to sell it quickly, you might take advantage of low interest rates by getting this type of loan, particularly if it looks as if they may go lower.

An ARM loan would prove to be beneficial when you buy a home on a time when the interest rates are very low. You can take an ARM and have it changed later to a fixed loan when the interest rates go lower.

The third type would make you pay monthly for a fixed amount of time with a fixed interest rate; this is called the balloon home mortgage loan. At the end of the payment schedule, you will owe the unpaid balance in a single lump sum. The interest rates in this type are much lower than the fixed rate and the ARM.

The obvious disadvantage to this type of loan is the huge payment due at the end, but if you are planning to hold the house for a short period of time, then this might be the right loan for you.

It is essential to know and understand the different types of home loans so as to be more prepared when the time comes for you to decide which home mortgage loan would be more beneficial to you and your family.