Mortgage Types
Home loan are usually fixed-rate loans or adjustable-rate mortgages.

Fixed-rate mortgages have interest rates that don't change during the life of the loan. The interest rate on an adjustable-rate mortgage (ARM for short) adjusts every six to 12 months, or every month, depending on the terms of the loan. When interest rates fall, the ARM interest rate usually falls, but the opposite is true when interest rates increase.

Adjustable-rate mortgages are tied to an index which is a measure of the lender's cost of borrowing money. As the index rises, so will the interest rate on the adjustable loan. Common indexes include Treasury Securities (T-Bills), Certificates of Deposit (CDs), and Libor (London inter-bank offering rate).

Introductory rates on ARMs are usually two or three percentage points lower than the fixed-rate. Because initial expenses will be lower with an ARM, a lender is more likely to lend you more money than with a fixed-rate loan.

Fifteen and thirty year loans
The difference in payments and overall savings between a 15-year fixed-rate loan and a 30-year fixed-rate loan depends on the interest rate and the loan amount. Using a $100,000 loan and 7.25% interest rate as an example, monthly payments on the 15-year note would be $912.86. Monthly payments on a $100,000 loan at 7.25% fixed for 30 years would be $682.18.

The 15-year note offers the opportunity to save considerable money over the life of the loan, since the period of amortization is half that of the 30-year note. This means that the total interest paid on a 15-year note as compared to a 30-year note is significantly less.

FHA, VA, Fannie Mae, and Freddie Mac loans
There are programs available to help people purchase a home with less than 20 percent down. These include FHA (Federal Housing Administration) loans, VA (U.S. Department of Veterans Affairs) loans, Fannie Mae and Freddie Mac loans, and conventional low down payment mortgages.

Lending Costs:

Points
Points are prepaid interest charges paid to the lender at the time of closing. One point is equal to 1 percent of the total loan amount. The more points you pay, the lower your interest rate will be.

Other Lender Fees
Lenders usually charge $200 to $300 for application or processing fees. Some lenders don't charge the fee; some return it if you take the loan.

Credit Reports cost $30 to $50 to obtain a copy for the lender.

Appraisals are necessary to assure the lender that the property is worth approximately the price you agreed to pay. An appraisal of an average house costs a few hundred dollars.

Refinance?
When is the best time to refinance? The traditional answer to that question is when interest rates fall 2 percent below your current mortgage interest rate. However, in recent years some experts have argued that refinancing may be appropriate with a smaller point spread. Some weight is often given to the length of time the owner anticipates holding on to the property. If the owner expects to keep the property for at least three or four years, then refinancing may be worthwhile. While refinancing can involve upfront costs, in many cases it is possible to roll the costs of the refinancing into the new note and still reduce the amount of the monthly payment.

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