How to Pick the Right Mortgage

Shopping for a mortgage can be a little scary, especially if you don’t really understand how it all works. (And of course, there’s the fact that you’ll be stuck paying this loan back for the next 15 to 30 years.) But don’t worry. We’ve got a few tips to make the process a lot easier.

Consider the Costs
Determine how much you can afford to put toward the down payment (don't forget, you'll need to have enough money left over to cover the closing costs) and how much you can afford to pay monthly.

Think Ahead
If you only plan to stay in this house for several years, you'll want to put down less up front (read: a smaller down payment) and keep closing costs and fees as low as possible. But if you're in this for the long haul, putting more money toward the down payment and closing fees makes more sense.

Choose a Term
You need to choose a term length that is right for you, so think about how long you want to be paying this loan back. If you choose a shorter term, you'll owe more each month. But paying a couple extra bucks a month can really chop some years off your mortgage.

Choose: Fixed vs. Adjustable
Do some research to determine whether you want a fixed- or adjustable-rate mortgage, and ask friends or family members about their experience with the type of mortgage they chose. Interest rates will vary depending on the type of mortgage and can affect your monthly payments down the line, so think about what's best for you now -- and in the future. Do you want to owe the same amount every month for the next 15 to 30 years? Then you'll probably want to go with a fixed-rate mortgage. Or do you want to pay the lowest possible rate now with the possibility that your monthly fees could rise in the future (hopefully along with your salary)? Then an adjustable-rate mortgage could be for you.

Shop Around
Start off by comparing the mortgage plans offered by several different banks and lenders. Read the fine print, and make sure you understand all the nitty-gritty details about interest rates and loan terminations.