Fixed Rate

• On a fixed-rate mortgage your interest rate remains the same for the duration of the loan. Generally, fixed-rate mortgages have terms lasting either 15 or 30 years although many lenders allow you to take out 10- or 20-year fixed rate loans. Fixed-rate mortgages amortize, which means before you begin making payments the lender calculates the total interest and principal due over the term of the loan and divides that amount into equal monthly payments. Consequently, your payments are applied to both principal and interest.
  
  

Adjustable Rate Mortgages

• Adjustable-rate mortgages have interest rates that change over the life of the loan. The rates on some ARMs change every six months, while on others you keep the same rate for the first 10 years after which the rate changes at regular intervals. Interest rates are based on indexes such as the London Interbank Offer Rate or other interest rate indexes. Most ARMS start with a very low introductory rate, which means low monthly payments during the initial stage of the mortgage term. Thereafter, rates are subject to change but rate caps prevent your rate from rising above certain levels.
  
  

Balloon

• Balloon mortgages have payments that are based on an amortization term of 30 years. However, you only make monthly payments for up to seven years after which you must payoff the remainder of the loan with a single balloon payment. Many balloon loans have a reset option that allows you to continue making payments for between five and seven years before the balloon comes due again. These loans usually have very low interest rates so payments for the initial phase are usually lower than on regular 30-year fixed rate loans.
  
  

Other Options

• If you have no money for a down payment or no equity in a home that you intend to refinance you can ask your lender about an 80 and 20 loan combination. These loan combinations involve taking out a fixed rate 15- or 30-year loan for up to 80 percent of your property value and a second shorter term loan for the remaining 20 percent of your home's value.
  
  Other options include variable rate home equity lines of credit, that work like credit cards but are secured to your home, and home equity loans, that work like fixed-rate mortgages but often have five- or 10-year terms.