Monthly principal and interest payments do not change over the term of the loan, which means your mortgage expenses are easily anticipated. However, fixed rate mortgages have a higher interest rate and your rate and payment will not improve if the interest rates drop.  This may be the best option for you if you believe interest rates are going to increase.

The interest rate on this loan will be fixed for a stated period of time and will then become adjustable for the remainder of the loan. For example, a 5-year fixed (30-year) loan would have a fixed interest rate for the first five years and then convert to an adjustable rate for the remaining 25 years.

Adjustable rate loans have more risk due to the possibility that the interest rate could increase. However, because you are assuming additional risk the lender will generally reward you with a lower interest rate and monthly payment during the initial fixed interest period. These loans are of particular benefit to borrowers that plan to either sell the property or refinance before reaching the adjustable period.

A balloon mortgage has uniform monthly payments up to a predetermined date and a lump sum or "balloon" payment is due at the end of the loan period to complete the payoff of the loan. Because of the structure of the payment schedule, the uniform monthly payments tend to be lower than those for many other types of fixed rate or standard adjustable rate products. Balloon mortgages usually have a predetermined refinance option (the terms are not negotiable) that the borrower may use if they believe they will have difficulty paying the balloon payment. A balloon loan might be attractive to someone who planned on selling his or her home before the balloon payment was due.

In qualifying for these products, the lender will not require you to provide standard explanations of your income, such as tax returns. This means that there is no verification of your income, but you must state the source of your income. Because of the lack of paperwork, these mortgages have higher interest rates meaning a higher mortgage payment.  Individuals likely to be interested in a stated income loan are typically self-employed or individuals who write-off a large portion of their income such as contractors, waiters & waitresses.

Loans with prepayment penalties generally offer lower interest rates, however the lender will penalize you if you wish to pay off part or all of the loan balance in advance of the predetermined schedule. Generally, prepayment penalties for ARM products would be incurred if you made full or partial prepayments within three years from the date of your note. A prepayment penalty on a fixed rate product would be incurred if you paid off the loan balance early. The penalty varies by product.

A combination loan is a loan that has a first and second mortgage combined. Usually, a combination loan is used when a borrower does not have the usual 10 to 20 percent for a down payment. For example, one type of combination loan is an "80/10/15." On this loan, you get a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the loan balance. When you take out two loans instead of one, you are not required to pay private mortgage insurance (PMI).  PMI is mandatory on loans above 80% of the value of the home.  Call a Midland Funding loan specialist and they will help you decide if this kind of loan is right for you.

A home equity line of credit is a form of revolving credit in which your home serves as collateral. You only borrow and pay interest on what you need.  Think of it as a credit card that is secured by the equity in your home. Many homeowners use these credit lines for major items such as debt consolidation, travel expenses and home improvements.