Are you thinking about buying a home and considering your home loan options? If you\’re purchasing your first home or condo deciding on the type of mortgage loan can be quite challenging. The most popular type of home loan is a 30 year fixed rate mortgage. With 30 year fixed mortgage rates the interest rate on the loan stays the same for the entire life of the loan.

A fixed interest rate also makes your monthly mortgage payments the same for the entire life of the loan. Of course your monthly escrow payments can fluctuate causing your monthly payments to increase. Escrow payments are payments for real estate taxes and home owners insurance.

If you put less than 20 percent down when you buy your home you\’ll also have to pay private mortgage insurance (PMI). Banks, credit unions and mortgage lenders will require you buy mortgage insurance if you put less than 20 percent down since you are a higher risk of possibly defaulting on your loan.

Another fixed mortgage that has become more popular are 15 year fixed rate mortgages. With a 15 year loan you pay your mortgage off in half the time than a 30 year loan. Another benefit to getting a 15 year mortgage is 15 year mortgage interest rates are also lower than 30 year mortgage interest rates. Paying a lower interest rate for 15 years than a higher interest rate for 30 years will save you tens of thousands of dollars or even hundreds of thousands of dollars.

The biggest drawback to a 15 year loan is your monthly mortgage payments are going to be considerably higher than a 30 year loan. If you can afford the higher payments 15 years is the way to go. Another option if you can\’t afford the monthly payments on a 15 year is to make additional principal payments on a 30 year loan. Making additional payments will also save you tens of thousands of dollars.

Most banks and credit unions allow you to sign up for bi-weekly mortgage payments which will also save you money in the low run. With a bi-weekly mortgage payment your payments are split up but since there are 52 weeks in the year you actually end up making two extra payments which saves you in interest payments.

Here is an example. Your monthly mortgage payment is $1,000. If you make 12 payments your total annual payments would be $12,000. If you bi-weekly payments, $500 every two weeks, 26 payments are year you end up paying $13,000. Most banks and credit unions will charge you a fee of $100 to $250 to setup biweekly payments.

Adjustable rate mortgages which were very popular during the housing bubble are less popular today. The biggest difference with an adjustable home loan versus a fixed home loan is the adjustable loans have a fixed interest rate for a period of time. With a fixed loan the mortgage interest rate stays the same for the entire life of the loan.

Since the interest rate can change on an adjustable loan after the fixed period your monthly mortgage payments can increase. During the bubble many people got an adjustable loan not knowing their payments could increase in the future. Many homeowners lost their homes because they couldn\’t afford the new monthly payments.

So when you\’re deciding on a home loan do your homework and understand the differences between fixed mortgages and adjustable mortgages.

Author Bio: Compare mortgage Rates, refinance rates and CD rates at RatesORama.com.

Category: Real Estate
Keywords: mortgage rates, adjustable mortgage rates, refinance rates