Picking the right mortgage

When you're buying a home, choose the kind of mortgage that will serve you best. The traditional 30-year fixed-rate loan isn't perfect for everyone. A 15-year loan, for example, might be right for you, as might an adjustable-rate mortgage. Here's a look at the pros and cons of different kinds of mortgages.

A 30-year mortgage suits many homebuyers because it generally offers lower monthly payments — and it can be easier to qualify for, too. Lower payments can help buyers buy a better house, and/or they can leave more money in the household budget for saving, investing, emergencies and other needs. But such a long loan means that you'll be paying a lot more interest over the life of the loan than you would with a shorterterm one. You're likely to have a higher interest rate, too, and you'll build equity in your home more slowly.

A 15-year mortgage will likely offer a somewhat lower interest rate, but your monthly payments will be higher. You'll build equity in your home faster, you'll pay much less in overall interest, and you'll pay off your loan in half the time. Still, if you're tempted to go with a 15-year loan, consider taking on a 30year one and making extra payments regularly. Doing so will shorten the life of your loan considerably, and if money ever gets tight, you can always make only your regular payments.

Next, consider whether you should get a fixed-rate or adjustable-rate mortgage (ARM). When interest rates are low, fixedrate loans — which make it easy to budget — are compelling. When rates are on the high side, consider an ARM; it will give you a relatively low starter rate for a few years, after which your payments will ratchet up or down per prevailing interest rates. An ARM can burn you if rates keep rising for a long time, but it can be a smart choice if you don't plan to stay in the home for decades.

Weigh your options carefully before getting a mortgage. Learn more at ConsumerFinance.gov.