• Fixed-rate
• Adjustable-rate
• Balloon loans
• VA, FHA and FmHA mortgages
• How points factor into the mortgage equation

Fixed-rate mortgages.
With a fixed-rate mortgage, your interest rate stays the same, or "fixed," throughout the term of the loan. Therefore, your mortgage payment stays predictably the same, making it easier to plan your spending each month. However, lenders typically charge a higher interest rate (to make up for the lost income that could be gained from a rate increase), which lowers the total amount you can borrow. And though you're protected from rising interest rates, you're also stuck with a certain rate even if the going rates fall.

15-year vs. 30-year. The most common fixed-rate mortgages are 15-year and 30-year, which refer to the time you have to pay off the loans. The interest rate on a 15-year mortgage is usually lower than a 30-year mortgage, meaning you'll pay less over the life of the loan. But you can expect your monthly payments to be higher since you have half the time to pay it off.

Adjustable-rate mortgages.
Also called ARMs or adjustables, these mortgages typically start off with a lower "teaser" interest rate that stays fixed for a specified time, and then "adjusts" periodically depending on changes in the market interest rate. Your risk is that the interest rate—tied to a money market index such as the one-year U.S. Treasury bill or certificates of deposit—will fluctuate, and so will your payment. Your lender can tell you the highest possible monthly payment you would owe if the interest rate hit its max, or cap: Be sure you can afford it! One good reason to consider an ARM is if you don't plan to stay in your home for very long; another is if you're sure your income will increase enough to cover the maximum payment possible. And, of course, if interest rates go down, so will your payments. With these loans, the lender is taking less risk since he or she gets to charge you more interest when the rates go up. As a result, you can typically borrow a larger amount, making it possible to buy a home you wouldn't otherwise be able to afford.

Example: 10/1 ARM. This loan has a fixed interest rate (and monthly payment) for the first 10 years, with an annual (that's what the "1" in "10/1" refers to) adjustment to the interest rate for the next 20 years of a 30-year loan. The lower the first number—7/1 ARM, 3/1 ARM or even 6-month ARM—the lower your initial interest rate. How often rates are adjusted is established at the time you apply for your loan.

Balloon loans.
Balloon loans have a lower interest rate than a fixed-rate mortgage. The interest rate stays stable for a specified time—such as five, seven or ten years. But when that time is up, you still have to pay off the entire balance of the loan. Borrowers consider balloon loans when they don't qualify for a traditional mortgage, or during periods of high interest rates. The idea is to refinance when the loan balance is due.

VA, FHA and FmHA mortgages.
If you have less than 20% of the purchase price to apply to a down payment, you can ask your lender about loans guaranteed by the government organizations below. These mortgages offer competitive interest rates, with little to no money down, such as:

• Veteran's Administration (VA) mortgage. Qualifying veterans can get VA loans with no money down for houses valued at up to $203,000.

• Federal Housing Administration (FHA) mortgage. Designed for people with modest income, these mortgages usually require a down payment of around 3% to 5% of the purchase price and offer competitive interest rates.

• Farmers Home Administration (FmHA) mortgage. These no-money-down loans are for individuals with limited income who prefer to live in rural communities. Interest can be as low as 1%.

You may have heard about "points."
Lenders make money on the interest they charge. "Points"—also known as "loan origination fees"—are up-front interest to compensate the lender for processing your mortgage. Each point equals 1% of the loan. For example, if you borrow $100,000, one point would equal $1000. Points are also referred to as "discount points" because usually the more points you pay, the lower the interest rate is, saving you money in the long haul. "Zero-point" loans exist, but the trade-off is you'll pay a higher interest rate, making for higher monthly payments over the life of the loan. Points, like interest rates, are negotiable; try to make them fit your situation.