What length mortgage should you get? -- Page 2

"A lot of lenders offer them," says Guttentag. "Often they're not priced very well."

Here's why: Mortgage holders often will resell your loan, and there is a ready market for 15- and 30-year mortgages. But that's not the case with nontraditional-length loans. Since they can't make money reselling them, lenders may not offer those attractive rates for nontraditional-length loans.

So if you want a mortgage length outside the standard 15- or 30-year term, shop carefully, do the math and make sure it's the best deal for you.

Hybrid adjustable-rate mortgages: The most popular types of hybrids give the borrower a fixed rate for one, three, five, seven or 10 years, then convert to an adjustable-rate mortgage. The upside: The rate is often cheaper than your typical 30-year fixed rate, and most people stay in one home for about eight years.

Five- and seven-year ARMs are particularly good for first-time home buyers and people who are planning on being in their homes for a short period, says Farrell. The idea: Sell while you still have a fixed rate.

Shop the rate caps, too, says Guttentag. When the loans move into the adjustable phase, the rates usually can change annually. The first-year hike can be capped at anywhere between 2 and 5 percent, he says. Successive years are usually capped at 2 percent. You also want to understand what the rate is based on, he says. What index does the lender use to decide whether the rate will go up or down?

And what happens if you don't move? "If interest rates have gone up, you may not be able to find [a rate] that's more attractive," says Tyson. So before you sign for that adjustable-rate loan, ask: "What's the maximum payment of this mortgage, and could I afford that?"

One other caution about adjustable-rate mortgages: Ask if the loan includes negative amortization. How it works: The interest rate goes up, but your payment is capped. When the payment isn't enough to cover the interest expense and principal, the shortage is added to your loan balance.

Result: Even when your loan term is up, you could still be paying.

Farrell's advice on loans with negative amortization is simple: Don't get one.

But some don't necessarily see negative amortization as a bad thing. "Rates go up, but the payment doesn't necessarily go up with it," says Guttentag. "Negative amortization loans have their advantages. It's a way to get the initial payment down."

But it comes at a cost, and it's important that the borrower understands and feels comfortable with those terms.

"There are no free lunches in mortgage design," Guttentag says.

Make-your-own mortgage: One other option allows homeowners to easily adjust the length of their mortgage -- by making additional principal payments. Assuming you have no prepayment penalties, every extra dollar of principal you pay shortens your payoff period. For example, you could take out a 30-year mortgage and pay it off several years ahead of time by making one extra payment a year (just tell the lender to apply it to the principal).

You can figure out how much extra to pay to reach your goal by using Bankrate's amortization calculator.

What are you buying?

A condo offers a couple of financial unknowns. While a fixed-rate mortgage can guarantee you regular payments, in a condo association fees can go up and there's always the possibility of an unplanned assessment. And while you may plan to sell and get out in a few years, what happens if the condo market takes a nosedive? You can either sell for less than you want or pony up larger payments for a home that's not appreciating the way you'd like.

Because of the extra risks, "I think with a condo, I'd be leaning much more toward a traditional mortgage," says Farrell.

Where are you on the road of life?

The top reasons families lose their homes are unexpected financial disasters: A spouse becomes ill or dies, or there is a job loss, divorce or other calamity, says Duncan.

For that reason, you want to make sure that you've put up some financial safeguards to protect your family. While now you might be able to stretch to meet that 15-year mortgage payment, what happens if you go from two incomes to one? You might be better off taking the longer mortgage and putting the difference into a life insurance policy or emergency fund.

But that also means you have to have the discipline to realize that "extra" money is not disposable income, says Tyson.

Some buyers try to plan it so that the mortgage will be paid off in advance of some anticipated financial event, like sending kids to college or retiring.

David Reed, president of The Reed Group, an Austin, Texas, mortgage-banking firm, remembers one client with a 3-year-old child who opted for a 15-year mortgage. When the homeowner's daughter heads off to college, he "wants to be mortgage-free," Reed says. "That's one consideration."

Another big one is retirement. "There is some logic to matching the mortgage's payoff to approximately when you're going to retire," says Tyson.

Another factor to consider: If you are living on a relatively fixed income after retirement, it might be wise to choose a mortgage that will give you fixed payments during that same time.

"If you're approaching retirement, in your late 50s or early 60s, I would suggest getting [a fixed mortgage]," says Reed, also the author of "Mortgages 101." That way, he says, you know what your payment will be each month.

Some older buyers debate the wisdom of taking on a 30- or 40-year debt. Balderdash, says Guttentag. For a wide variety of reasons, "Very few people pay off their mortgages anymore," he says.

Instead, Guttentag says, making the best choice comes down to the matter of your finances. "The general rule is, what is the shortest term you can afford?"