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 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 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, sponsored by agencies such as the Federal Housing
Administration www.fha.gov or the 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.
*The accuracy of this calculation is not guaranteed.
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