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< About Buying Real Estate
Brush up on these mortgage basics to help you determine the loan that will
best suit your needs.
- Mortgage terms. Mortgages are generally available at 15-, 20-, or
30-year terms. In general, the longer the term, the lower the monthly payment.
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 as long as you hold the mortgage and, in general, is
usually a good choice if interest rates are low. An adjustable-rate mortgage
is designed so that your loan’s interest rate will rise as market interest
rates increase. ARMs 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. These types of
mortgages are a good choice when fixed interest rates are high or when you
expect your income to grow significantly in the coming years.
- Balloon mortgages. These 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. These loans are sponsored by agencies
such as the Federal Housing Administration (www.fha.gov) or the Department of
Veterans Affairs (www.va.gov) and 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, try this interactive mortgage calculator.
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