Shopping for a Mortgage

Buying a home requires informed mortgage shopping. The right mortgage primarily depends on your financial situation, how long you intend to keep the house and whether you are comfortable with having a shifting mortgage.

Banks are no longer the only place to get a mortgage. Virtually all financial services companies, including credit unions and brokerage firms, offer mortgages.

Other sources include mortgage companies, developers and sellers. The Internet can also help when researching lenders, interest rates and mortgage information.

The two most common types of mortgages are fixed-rate loans and adjustable rate mortgages (ARM). With a fixed-rate mortgage, the interest rate stays the same for the life of the mortgage, meaning monthly principal and interest payments remain constant for the term selected. Fixed-rate loans usually have a higher interest rate.

Interest rates for ARMs change on a regular schedule, based on a pre-determined index. It typically has an annual cap limiting how much the rate can change in a year, and a lifetime cap limiting change over the life of the loan. Although ARMs offer lower initial interest rates, be prepared for the possibility of rising monthly payments if the rates rise.

Hybrid loans combine features of both fixed and adjustable rate loans. For example, a hybrid loan may offer an initial fixed rate that is in effect for three years. After the third year, the rate adjusts to the market rate.