I am Peter Thompson, My goal is to take the mystery out of the home buying and mortgage process, and help home buyers understand their options.

Types of mortgages

This is also the time to get your mortgage finalized. You may have gone over this when you were pre-approved, if not, you need to decide what type of mortgage is best for you. There are a tremendous number of mortgages available – we have over 1,500 different loan programs – but most of them are variations of a few types, and most will break down into one of two categories: fixed rates, or adjustables.

Fixed rate mortgages: This is probably the first type of mortgage you’ll look at. These are the simplest and safest mortgages overall, because you know that your payment will stay the same from your first payment to the last.

A fixed rate means that the interest rate and the monthly payment are fixed at closing, and never change. The most common mortgage is a 30 year fixed, but you can get fixed rates that run for 25, 20, 15 and 10 years. In each case, if you stay in the mortgage for the whole time period, you’ll pay off the mortgage and own your home free and clear at the end of the term. The shorter the period you’re borrowing for (say a 15 year instead of a 30) the more of each payment will go toward principal, so your loan pays off faster. The difference in payment between a 30 year and a 25 isn’t that much. If you can afford it, you may want to go this way and pay your mortgage off quicker. But before you do, take a look at your overall financial situation. One major mistake people make is to pay off their mortgage quickly, while maintaining balances on their credit cards. You’re better off if you take a longer term mortgage, and use the difference in payments to pay down your debt. If your goal is to build up equity quicker, there are other ways to do that, as we will see.

In recent years many people have chosen to go with a fixed rate, because interest rates have been so low. This has been a safe choice, but it’s not always the best choice. Most people, especially first time home buyers, don’t stay in their home, or their mortgage, for anywhere close to 30, or even 15 years. The average time people are in a mortgage is now just over 5 years. With a fixed rate you know your interest rate will never change, but if you don’t think you’ll stay in the home, or the loan, that long, you could be paying thousands of dollars more than you have to.