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Choices
That Will Affect Your Loan
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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.
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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
(ARM) 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.
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Balloon mortgages. 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.
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Government-backed loans. Government-backed
loans, sponsored by agencies such as the Federal
Housing Administration (www.fha.gov) or the U.S.
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 at
http://www.fanniemae.com/homebuyers/calculators/index.jhtml?p=Resources&s=Calculators |
