Loan Programs

There are hundreds of different loan programs available to you as a consumer. Depending on your specific situation, there may only be a few that actually fit your needs.

Be sure to consider your career (possible relocation), family goals (more children), financial goals (early payoff), etc. before deciding on one program or another. The time you spend understanding some basics may put you into the right program, or keep you out of the wrong one.

Adjustable Rate Loans

These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage, and could allow you to buy a more expensive home.

However, the interest rate changes at specified intervals ( for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also.

There are also mortgages that combine aspects of fixed and adjustable rate mortgages - starting at a low fixed-rate for three,  five or seven years, for example, then adjusting to market conditions. Many ARMs are assumable and can be converted to a fixed-rate mortgage in the future.  Click Here for more information on ARMs or ask your mortgage professional  about these and other special kinds of mortgages that fit your specific financial situation

Balloon Mortgages

Balloon loans are short term mortgages that have some features of a fixed rate mortgage, but carry an interest rate significantly below a comparable fixed-rate loan. The loans provide a level payment feature during the term of the loan, but as opposed to the 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term. At the end of the loan term there is still a remaining principal loan balance and the lender generally requires that the loan be paid in full. Balloon loans can have many types of maturities, but most balloons that are first mortgages have a term of 5 to 7 years and many balloon programs allow conversion to a normal fixed-rate loan before maturity.

"Interest-Only" Mortgages

The Interest-Only loan is a relatively new product available at both fixed and adjustable rates. This type of loan allows the mortgagor to pay only accrued finance charges for a specified period of time -- deferring the re-payment of the principal until a specified future date -- which has the effect of reducing the required initial minimum monthly payment to the lender. For example, a lender may offer a 30-year fixed, interest-only mortgage for the first 10 years, meaning that no principal payments are required for 120 months. After 120 months has elapsed, the loan will require principal and interest payments for the balance of the 20-year term.

Fixed Rate Loans

The old standby fixed rate mortgage is exactly what it implies. A fixed rate of interest is paid over the term of the loan, either 10, 15, 20, or 30 years.

With this type of mortgage your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.

Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "bi-weekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.)

Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. The most common fixed rate loans are 15 year and 30 year mortgages.

During the early amortization period, a large percentage of the monthly payment is used for paying the interest . As the loan is paid down, more of the monthly payment is applied to principal . A typical 30 year fixed rate mortgage takes 22.5 years of level payments to pay half of the original loan amount.

Choosing The Best Program

There isn't a single, simple answer to this question. The right type of mortgage for you depends on many different factors:

Your current financial picture; How you expect your finances to change; How long you intend to keep your house; And how comfortable you are with your mortgage payment changing from time to time.

For example, a 15-year fixed-rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. And an adjustable rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage -- but your payments could get higher when the interest rate changes.

The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage lender.