Picking the Right Mortgage for You

Deciding on a mortgage doesn't have to be a daunting task; not when you're armed with the tools to choose. Lenders will tell you that there are hundreds of different options, but in reality, you'll only be picking from between a few basic mortgage types.

You'll soon learn that the right mortgage for you will depend on several different factors, such as your current monthly income, assets, your current bills, and any expected income in the future. You'll also decide on things such as paying points now or over the life of the loan. To start, let's take look at the most popular types of mortgages today.

Adjustable-Rate Mortgage

The interest rate fluctuates
Low initial rate, but grows each year
Rate can also drop

Fixed-Rate Mortgage

Most popular variety
Rate stays constant over the life of the loan
Usual terms are 10, 15, 20, and 30 years

VA Loan

For military veterans
No down payment required
Veterans don't pay points; seller might have to pay extra money

FHA Mortgage

3%-5% down payment required
High mortgage insurance premium required
Pre-set spending limits

Two-Step Mortgage

Convertible - converts to fixed loan after 5 or 7 years
Non-convertible - converts to ARM
Riskier than fixed rate loans

Balloon Mortgage

Loan must be paid in full when it's due
Amortized over 30 or 50 years
You pay first 5 or 10 years before pay off or pay only interest until the loan is due

Shared Appreciation Mortgages

Below-market rate in exchange for a share of the profits when you sell
Common among low income, first-time buyers working with a non-profit group

Bi-Weekly Mortgage

Pay ½ of mortgage payment twice a month
26 payments instead of 12 in one year
Significantly lowers the interest paid over the life of the loan

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