The two main types of mortgages are fixed rate and adjustable rate. A fixed rate offers stability in a fixed interest rate over the term of the loan -- whether it's 10, 15, 20 or 30 years – as payments are always the same. During the early part of the loan, the majority of each payment goes toward paying off the loan's interest. In the latter part of the loan, the payments are paying off mostly the principal.
An adjustable rate mortgage (ARM) offers an adjusting interest rate that may increase or decrease within certain set period of time. The interest rates are tied to a market index, and as the market fluctuates, so will your monthly payment. The intervals of time in which the interest rate is adjusted are specified in the loan contract, and often times there are caps placed on how much the rate can increase.
A hybrid ARM loan is a type of adjustable rate mortgage that start off with a fixed rate for a set amount of time before rates begin to adjust.
There are also two government-backed loans insured by a federal agency. An FHA loan is designed for first-time buyers and buyers with moderate or low income and is by far the most popular. The biggest benefit of an FHA loan is the low down payment (generally around three percent) and lower interest rates than standard fixed rate loans. If you qualify, VA and USDA loans are no-brainers, as no down payment is required.
If the most common types of mortgage loans don't fit your situation, look into interest-only mortgages, balloon payment mortgages, graduated payment mortgages (GPM), two-step mortgages, bi-monthly mortgages and bi-weekly mortgage options.