What Are My Mortage Options

Q: I want to buy my first home but need help understanding the different types of mortgages that are available and which is my best option. Any basic pointers would be greatly appreciated!

Good for you for buying your first home. Interest rates are the lowest they've been in decades.  Start by understanding that most mortgages are based on a 30-year term. This means that your mortgage amount is spread over 30 years. You can also spread it over 15 years - or term.  For these mortgages, you can get a fixed interest rate, which means your rate won't change over your term.  Because rates are so low, you should aim for 30-year fixed rate mortgage so your rate never changes.

The other type of main mortgage is an adjustable rate mortgage or ARM. In the last few years, many folks got into a lot of trouble with this mortgage.  This mortgage is still based on a 30-year term but, there are two types of rates.  The first rate tends to be lower than 30 year fixed rate. It stays that rate for either 5, 7, or 10 years - depending on what you choose. After the initial time, the rate then becomes adjustable based on market rates. The risk is that the rate will jump up and increase the monthly mortgage payment significantly. This should only be an option if you are planning on staying in your home for the initial time period - 5, 7 or 10 years. Therefore, you don't run the risk of a too expensive mortgage payment.

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