Loan
Types to Consider
Brush
up on these mortgage basics to help you determine the loan that will
best suit your needs.
Mortgage
terms.
Mortgages are generally available at 15-, 20-, or 30-year terms. In
general, the longer the term, the lower the monthly payment. 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 as long as you hold the
mortgage and, in general, is usually a good choice if interest rates
are low. An adjustable-rate mortgage is designed so that your loan’s
interest rate will rise as market interest rates increase. ARMs
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. These types of
mortgages are a good choice when fixed interest rates are high or
when you expect your income to grow significantly in the coming
years.
Balloon
mortgages.
These
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.
These
loans are sponsored by agencies such as the Federal Housing
Administration ( www.fha.gov) or the Department of Veterans Affairs
(www.va.gov) and offer special terms, including lower down payments
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
Fannie Mae’s online mortgage calculators
(www.fanniemae.com/homebuyers/calculators).
Reprinted
from REALTOR® Magazine (RealtorMag.Realtor.org)
with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright
2008. All rights reserved.