A mortgage is usually the single biggest expense in most people’s monthly budget. So, it’s understandable that people want to spend as little on their mortgages as possible, which is why the lower interest rates can be tempting. But there are other things to take into consideration. Namely, you have to look also at your lifestyle and your personality.

The old-school, conventional fixed rate mortgages are still the most common. The biggest advantage: Peace of mind. Fixed rate mortgages appeal to buyers who want to lock in a rate they are happy with, and forget about it. It’s a great choice for people who want consistency in their budgeting and want to know all the time what their monthly payments will look like.

One question: would you prefer a 15 year, or 30 year mortgage? There are advantage to both options. Monthly payments on a 30 year loan are generally lower than on a 15 year loan. Those who opt for a 15 year loan build equity more quickly and pay less interest over the life of the loan.

However, whether it’s a 30, or 15 year note, getting a conventional mortgage often requires a big down payment — 20% or more!

If you don’t have that kind of cash in your savings account, then check out FHA loans. Guaranteed by the federal government, FHA loans are filled with incentives like rates and low down payments. Buyers who don’t have a lot saved for a down payment can put down as little as 3.5%. There are some restrictions, however, as to the types of properties you can buy because not all of them are eligible under FHA rules.

Now, for some people, the fixed rate route, is not the best route. For some people, ARMs, or adjustable rate mortgages, are the best option. They’re unpredictable, but that is not necessarily bad thing.

During the initial fixed period, the rate can be really low, meaning payments on that loan will be low. That fixed period generally lasts sometime between one and 10 years.
Many ARMs come with the option to convert to a fixed rate loan, for a fee. This might appeal to someone who enjoys watching rates going up and down and who will jump on a great fixed rate when the time is right.

These days, Balloon mortgages are rare, but if you look hard enough, you might be able to find one. In a balloon mortgage, the term is short, with a term of usually 5 to 7 years. The payments are low because they are based on a term of 30 year loan. They also carry a lower interest rate as well. But, there is substantial risk associated with balloon mortgages. The problem comes at the end of the term when the borrower needs to pay off the outstanding balance. And, the big question there is…what if property values have gone down? You might not be able to refinance.

There is usually an option to reset this type of loan, but it is not automatic and requires the borrower be in good standing at the end of the loan. It may also be a useful instrument for anyone who knows they are going to sell a property in just a few years, well before the loan has to be paid.

Now all these options can be confusing — talk to your REALTOR®, and explain your plans. Discuss your mortgage options – especially, how much risk is too much risk. This will help you be sure the mortgage you pick, is the right mortgage for you.