Choices That Will Affect Your Loan
- 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
- 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 or the U.S.
Department of Veterans Affairs, offer special terms, including lower
downpayments or reduced interest rates to qualified buyers.
Slight variations in interest rates, loan amounts, and terms can
significantly affect your monthly payment. For help in determining how much
your monthly payment will be for various loan amounts, use our
online mortgage calculators.
Reprinted from REALTOR® Magazine Online
by permission of the NATIONAL ASSOCIATION OF REALTORS®
Copyright 2005. All rights reserved.