Choices That Will 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 interest rate. 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 when interest rates are low.

* An adjustable-rate mortgage is designed so that your mortgage payment 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 can a good choice when interest rates are high or when you expect your income to grow significantly in the coming years. However, remember that ARMs can result is a loan that grows too high for you to be able to make the payments, which can result in losing your home to foreclosure.

* Balloon mortgages offer very low interest rates for a short period of time’Äîoften 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 know you will sell your home in a few years.

* Government-backed loans, sponsored by agencies such as the Federal Housing Administration or the Department of Veterans Affairs, offer special terms, including lower downpayments or reduced interest rates’Äîto qualified buyers. Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment.