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
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 Fannie Mae’s online mortgage
calculators.
