The annual percentage rate (APR) is an interest rate that is different from the loan rate. It is used to compare loans from different lenders. The Federal Truth in Lending Law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.

APR takes into account some costs of getting the loan, including points, most loan fees, and mortgage insurance. It does not take into account certain charges, including nonrefundable application fees, late payment charges, title insurance premiums, and fees for title examination, property appraisals and document preparation.

Loan Types

Fixed-Rate Mortgage Loans
A fixed-rate mortgage loan is best if you plan to stay in your house for a long time. A fixed-rate loan ensures that there will be no surprises. 15, 20, and 30 year repayment terms are the most common. Generally your monthly payments will be very stable. During the early amortization period, a large percentage of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied to principal.

. 30-Year Fixed-Rate Mortgage Loans
With the 30-year fixed-rate you will be able to keep your payments down by making them over an extended time period of 30 years. This mortgage loan is the easiest fixed-rate to qualify for and provides the maximum interest deduction for taxes.

. 20-Year Fixed-Rate Mortgage Loans
The mortgage loan interest rate is often much lower with a 20 year fixed rate mortgage. This mortgage amortizes principal and interest over 20 years & may save a considerable amount of total interest in the long run, but the monthly payments will overall be much higher than the 30-year fixed-rate.

. 15-Year Fixed-Rate Mortgage Loans
Since you would be paying off the mortgage quicker than the other fixed-rate loans, you will build up equity in your home a lot sooner. This is an ideal mortgage loan for someone who is approaching other big expenses such as college tuition for their kids or their own retirement.

Adjustable-Rate Mortgage Loans

With an adjustable-rate loan (ARM), the interest rate adjusts periodically as the market rates change. This means that your monthly interest rate could go up or down depending on the market. These mortgage loans are attractive to consumers because they usually offer a lower initial interest rate than a fixed-rate loan. The other benefit to this is that many people qualify for larger loans due to this initially lower rate. The downside is that the rate can increase by quite a bit and some people can't handle the instability. Who should consider an ARM?

. Those who are confident that their income will rise enough in the upcoming years to support an increase in interest rate.

. Those who plan to move in the next few years and therefore aren't concerned with an increase.

. Those who you need a lower initial rate to afford to buy the home you want. Please note: There are "caps" or limits to the amount that your interest rate can increase.

Each loan has two caps. One sets the most your interest rate can increase during each adjustment period and the other cap sets the absolute maximum amount of all interest rate adjustments throughout the life of the loan. These caps depend on the terms of your loan. Make sure that you can afford the payment when rates are at the highest cap mark before accepting the loan.

These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage, and could allow you to buy a more expensive home.

However, the interest rate changes at specified intervals (for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also.

There are also mortgages that combine aspects of fixed and adjustable rate mortgages - starting at a low fixed-rate for seven to ten years, for example, then adjusting to market conditions. Ask your mortgage professional about these and other special kinds of mortgages that fit your specific financial situation

Balloon Loans
Balloon loans are attractive because they offer a lower interest rate for a short term financing period. (Usually 5, 7 or 10 years) At the end of the term you will be required to either pay off the outstanding balance in one lump sum or you can refinance the loan. If you don't think you can meet the refinancing conditions or you think the balloon term may be up before you are ready to move, this is probably not the type of mortgage loan for you. Balloon loans are short term mortgages that have some features of a fixed rate mortgage, such as a level payment feature during the term of the loan.

At the end of the loan term there is still a remaining principal loan balance and the mortgage company generally requires that the loan be paid in full, which can be accomplished by refinancing. Many companies have other options such as a conversion feature at the end of the term. For example, the loan may convert to a 30 year fixed loan at the thirty year market rate plus 3/8 of a percentage point.