Which type of mortgage is primarily used for home purchases and usually has fixed terms?

The fixed-rate mortgage is primarily designed for home purchases, providing borrowers with predictability and stability in their monthly payments. This type of mortgage is characterized by a consistent interest rate that remains unchanged throughout the life of the loan, typically ranging from 15 to 30 years. This fixed nature allows homeowners to effectively budget their finances since they can anticipate their mortgage payment amount for the life of the loan.

With a fixed-rate mortgage, borrowers are insulated from fluctuations in interest rates that can occur with other types of mortgages. This is particularly appealing during times of economic uncertainty or rising interest rates, making it a popular choice among those purchasing their homes.

In contrast, other mortgage types may serve different functions or economic strategies. Short-term loans usually have repayment durations of five years or less and are often used for temporary financing needs. Interest-only mortgages allow borrowers to pay only interest for a specified period, which can lead to payment increases later on when principal payments begin. Meanwhile, balloon mortgages feature smaller early payments followed by a large payment due at the end of the term, which can create refinancing risks.

Overall, the fixed-rate mortgage stands out for its suitability for long-term home financing with consistent payment terms.