Mortgage term. Mortgages are generally available at
15-, 20-, or 30-year terms. The longer the term, the lower the monthly
payment if the same amount is borrowed. However, you pay more interest
overall if you borrow for a longer term.
Fixed or adjustable interest rates. A fixed rate allows
you to lock in a low rate for as long as you hold the mortgage and is usually
a good choice if interest rates are low. An adjustable-rate mortgage (ARM)
is designed so that interest rates will rise as interest rates increase;
however they usually offer a lower rate in the first years of the mortgage.
ARMs also usually have a limit as to how much the interest rate can be
increased and how frequently they can be raised. ARMs are a good choice
when interest rates are high or when you expect your income to grow significantly
in the coming years.
Balloon mortgages. Balloon mortgages offer very low
interest rates for a short period of time—often three to seven years.
Payments usually cover only the interest, so the principal owed is not
reduced. However, this type of loan may be a good choice if you think you
will sell your home in a few years.
Government-backed loans. Government-backed loans, sponsored
by agencies such as the Federal Housing Administration (www.fha.gov) or
the U.S. Department of Veterans Affairs (www.va.gov), offer special terms,
including lower downpayments or reduced interest rates—to qualified
buyers.
