Choices
That 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 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 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 this online calculator: http://www.realtor.org/realtororg.NSF/pages/FMCalculators?OpenDocument&Login.
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