Common Mortgage Types


When shopping for a mortgage loan, most people pay special attention to interest rates, but often neglect to carefully consider what type of mortgage loan best fits their needs. Here is a quick guide to the pros and cons of the three most common types of mortgage loans – fixed-rate, adjustable-rate and interest-only.

Fixed-rate mortgage

Fixed-rate mortgages are the most common type of mortgage. They're best defined by having an interest rate and payment that doesn't change for the life of the loan. These loans can have various amortization terms, but the most common terms are 30 years or 15 years.


  • Payment and interest rate certainty over the life of the loan,
  • No chance of payment shock as result of payment adjustment.


  • Interest rate and cost can be higher than that of comparable adjustable-rate products,
  • Payments can be less affordable,
  • Cost over the life of the loan could be higher than that of comparable products.

Adjustable-rate mortgage

An adjustable-rate or variable-rate mortgage is a loan with a note that has as interest rate that periodically adjusts to a new interest rate. An adjustable-rate mortgage can have fixed rate features during an initial period of time. During the rate adjustment period, a new interest rate is generated based on a published rate of interest, called an index, and, in most cases, a fixed rate differential, called a margin. Once the rate adjusts, the payment will also adjust to reflect the new rate of interest. Adjustable-rate mortgage can have protections such as interest rate or payment change caps that prevent significant payment shock.


  • Initial payments are more affordable than comparable fixed rate mortgages,
  • Total interest costs over the life of the loan can be lower compared to fixed rate loans,
  • Borrowers who intend to sell the property before the fixed-rate period expires can avoid paying the higher interest charges of longer-term fixed-rate loans.


  • Payment adjustments can create cash flow problems,
  • Payment and interest cost uncertainty over the life of the loan.

Interest-only Mortgage

An interest-only mortgage has an initial payment that includes only interest, with no principal reduction, for a specified period of time. After the interest-only period, an interest-only loan payment will adjust to include sufficient principal to amortize the loan over the remaining term. An interest-only mortgage can have both fixed interest rate and adjustable interest rate features.


  • Payments during the interest-only period can be significantly lower than those of fully amortized mortgages,
  • Lower payment can help investors take advantage of better investment opportunities.


  • Payment shock can be a significant after the interest-only period expires,
  • Equity creation begins only after the interest-only period expires.

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