Home Mortgage

Many people turn to mortgages for help in property financing. A mortgage's term and interest rate can decide the house you can purchase.

The 30-year fixed-rate mortgages are the most popular types. The longer term lowers the monthly payment, and the fixed rate provides constancy over the life of the loan. With low interest rates, these mortgages are interesting to buyers who plan to live in a home for six or seven years. Their disadvantages are low principal payments in the beginning years, and the chance that market rates will drop over the term. However, if you have a solid credit history and good income, you can refinance your mortgage when the rates decline.

The 15-year term lowers the interest rate, decreases total interest payments, and raises principal payments. It also increases monthly payments. A 30-year mortgage works better if you cannot afford to pay higher payments. If there are no prepayment penalties, you can also make additional principal payments. Just one extra monthly payment a year will pay off a 30-year mortgage in less than 22 years and save a significant amount of interest costs. If you plan to live in a home for three years or less, you can get an adjustable-rate mortgage (ARM), which offers initial rates that are lower than fixed mortgages. Usually after the initial year, rates are can be increased. Most ARMs, however, involve a cap on rate increases in a given year and over the life of the loan.

Another popular type of mortgage involves a balloon payment, which completely pays off the loan after a certain period, after which the remaining principal balance is due or subject to refinancing. This is good for homebuyers who want to sell before the final payment. However, since property values fluctuate, it may not be wise to sell when you want.