The Two Most Common Types of Mortgages and How do They Work

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One of the biggest financial decisions individuals have to make is taking out a mortgage. A mortgage is a loan a financial institution provides borrowers to help them purchase a house. However, in return, the owner has to pay monthly installments, including an interest rate, and offer the home itself as collateral. If the homeowner cannot pay off monthly installments, the lender can sell the home to recover the outstanding loan amount. The mortgage installment is paid at regular intervals.

In most cases, the borrowers have to make monthly payments that include the principal amount and the interest rate. The guide by provides all the necessary information about mortgage loans. The most common mortgages on the market are fixed and variable rates mortgages.

Fixed Mortgage

When an individual takes out a fixed mortgage, that individual pays the same monthly fee for all the years that have been predetermined. It has a fixed interest rate that is locked for a specific time. One of the biggest benefits of this type of mortgage is that the interest will not fluctuate and will not change the repayment amount. However, the downside of this type of mortgage is that if the interest rate drops, the person will have to pay the higher interest rate and miss the saving opportunity. Not only is the fixed rate mortgage the most popular type of mortgage loan, but it is also the most predictable. This is because the borrower will be charged for the interest rate that will be agreed upon in the beginning. The monthly payments will remain fixed. Therefore, the homeowner can prepare the budget easily as the mortgage payments will not change. 

Variable Mortgage

In the case of variable mortgages, the homeowners are not expected to pay a fixed amount every month until the loan is valid. It is a mortgage loan whose interest rate changes after a specific period. The bank or the lender reviews the installment every six or twelve months. The monthly installment the homeowner pays can go up or down. A variable mortgage is significantly riskier as the installments can change. However, the benefit of obtaining this type of mortgage is that the interest is significantly lower, and its processing expenses are less than a fixed mortgage.  


Taking out a mortgage is one of the most important financial decisions, so one should know all about mortgages and their types. Taking out a mortgage seems to be an intimidating process. Understanding the whole process is a must for anyone who needs to take out a mortgage. All these things must be understood, from the interest rates to your credit score. Also, the homeowners expect to pay a high amount of interest rate. However, this is not always the case. There are different types of mortgage loans having different interest rates. Therefore, homeowners should be aware of the types of mortgages and opt for the one that suits them and their budget the most.