What Kind of Mortgage Should I Get?

A fixed-rate mortgage carries the same interest rate throughout the life of the loan. An adjustable-rate mortgage has an introductory fixed-rate period, usually five, seven or 10 years. After that, the rate periodically adjusts according to a benchmark set by the market. There is usually a cap on how much the rate can adjust upward.

Fixed-rate mortgages offer more predictability, as your monthly principal and interest payment won’t change, and make sense if you plan to remain in your home for the foreseeable future. Adjustable rate loans can be cheaper during the initial fixed-rate period, and may be the better deal if you know you are likely to move before the rate begins adjusting. But keep in mind that if you don’t move as expected, your rate will follow the market and your monthly payment could rise considerably.

The number of years refers to the term of the loan, or the amount of time you have to pay it back. You have 30 years to repay a 30-year mortgage, and 15 years to repay a 15-year mortgage.

The advantage of a longer loan term is lower monthly payments – by spreading the loan amount over 30 years, you can pay more gradually. The advantage of a shorter term is that, while your monthly payments will be higher, the overall cost of the loan is less because you are paying interest for a shorter amount of time. Interest rates for 15-year loans also tend to be considerably lower than 30-year rates.

For more information on buying a home, check out the Consumer Financial Protection Bureau’s detailed online guide, Owning a Home.