House Rules: Choosing a Home Loan

By Emily Kerr
Loan Page Columnist

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Owning your own home is the American dream. You, too, can make the dream come true, but first you'll have to understand the world of home loans.

There are hundreds of home loan products on the market; discovering the right loan for you means doing your homework. Today's world of instant online applications and information makes this process much easier than it's been in the past.

It's important to do your research and find the right lender and the right loan product for your needs. You'll be paying on the loan for anywhere from 15 to 45 years.

Choosing a Loan Type

Fixed-Rate Loans

These loans have a fixed rate of interest that doesn't change during the term of the loan. If interest rates rise, your house payment doesn't. If interest rates drop, your house payment doesn't--but you can refinance your home loan for the lower rate.

There are:

  • » 30-year;
  • » 20-year; and
  • » 15-year fixed loans.

The most common and popular is the 30-year fixed loan, ideal for first-time buyers and buyers who have small reserves of cash and intend to remain in the home for a number of years.

Shorter term home loans have higher monthly payments, but because you have the loan for a shorter term, you pay less interest, build equity in your home faster, and own it sooner.

Adjustable Rage Mortgages (ARM)

These loans are popular because they may offer lower interest rates than fixed-rate loans. With lower initial interest rates, you may qualify for a larger loan. But keep in mind that with an ARM, the interest rate is adjusted with the federal interest rate--when interest rates rise, your mortgage payment changes accordingly.

ARMs are a good choice for buyers who:

  • » aren't looking to remain in the home for more than a few years;
  • » are planning to refinance within a short time;
  • » will probably increase their income in later years; or
  • » need a low interest rate on the loan so they can buy a home.

There's a loan product that's right for you; start looking and you'll find it.


About the Author

Emily Kerr is a freelance writer with over 350 articles in print. She writes about topics from construction to home loans, technology to education, and everything in between.

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