Not all home loans are the same. In this article, we will discuss the three key choices are the loan term (length of the loan), the interest rate type and the loan type. Knowing what kind of loan is most appropriate for your situation is important because it prepares you for speaking to lenders.

To start, a loan “option” is always made up of three different things:

1. LOAN TERM
2. INTEREST RATE TYPE
3. LOAN TYPE

Loan Term

30 Years, 15 Years or Other
Firstly, the term of your loan is how long you have to repay the loan.

This choice affects:

• Your monthly principal and interest payment
• Your interest rate
• How much interest you will pay over the life of the loan

Interest Rate Type

Fixed Rate or Adjustable Rate
Secondly, interest rates come in two basic types: fixed and adjustable.

This choice affects:

• Whether your interest rate can change
• Whether your monthly principal and interest payment can change as well as its amount
• How much interest you will pay over the life of the loan

Loan Type

Conventional, FHA or Special Programs
Thirdly, mortgage loans are organized into categories based on the size of the loan, as well as whether they are part of a government program.

This choice affects:

• How much you will need for a down payment
• The total cost of your loan, including interest as well as mortgage insurance
• How much you can borrow, and as a result, the house price range you can consider

Source: ConsumerFinance.org