There are many types of loans to choose from. Which loan is best for you depends on the length of the loan, amount of money you can afford to put down, the available rates and many more factors.  We will help you find the best loan for you. We will explain all of the options and benefits of each type.

A mortgage is a loan secured by a lien on your home. The amount of your mortgage is typically the purchase price of the home minus your down payment. There are two basic types of mortgages: Adjustable Rate Mortgages (ARM) and Fixed-Rate mortgages. There are also less common types of mortgages such as balloon mortgages and construction mortgages. When searching for a mortgage, it's important to understand the details of the payment terms. You will want to consider the interest rate, the length of the loan, the initial fees and points on the loan, and how property insurance and real-estate taxes are paid.

Fixed Rate Mortgages

A fixed rate mortgage is a mortgage in which the interest rate is fixed for the life of the loan. The advantage of a fixed rate mortgage is that the cost is predictible for the life of the loan and so the montly payments always remain the same. The tradeoff is that the lender is taking the risk that interest rates will rise so lenders demand a higher interest rate than if the loan were an adjustable rate loan.

Typically, fixed rate mortgages are either 15 or 30 years, although 40 year and even 50 year mortgages are becoming more available. The advantage of a longer loan is a lower montly payment by spreading out the loan over a longer period of time. The disadvantage is that the interest rates are higher and the borrower builds equity at a very slow pace because the initial payments go largely toward interest rather than principal.

Adjustable Rate Mortgages

An adjustable-rate mortgage, or ARM, is a mortgage where the interest rate of the loan varies according to an index. ARMs can be attractive because they typically offer initial lower rates than fixed-rate mortgages, but the buyer risks higher rates if interest rates rise.

An ARM has four basic components. The initial interest rate is typically one to three percentage points less than that of most fixed rate mortgages. The adjustment interval controls the time between when the monthly payment changes in response to changes in the interest rate. The index is the reference for determining the interest rate (often it is based on the one-year treasury bill). The margin is the additional ammount the lender charges over the index (typically between one to three percentage points).

Home Equity Loan

A home equity loan is a fixed or adjustable rate loan secured by equity in one's primary residence. The interest paid is usually tax deductible. Home equity loans are often used for home improvements or to replace other types of consumer loans that are not tax deductible and have higher interest rates.

Home Equity Line of Credit

A home equity line of credit is a variation where the bank provides a credit that the borrower can tap by writing checks or getting an advance. A home equity line of credit is a great way to pay off other debt such as credit cards and auto loans.

As a rule of thumb, here are some general rules to follow: