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Choices That Will Affect Your Loan
- 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.
- 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 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.
- 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.
- Government-backed loans, sponsored by agencies
such as the Federal Housing Administration (www.fha.gov)
or the 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.
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