How mortgages work: Introduction

There are as many types of mortgages to choose from as there are types of houses to buy. Here you'll learn how to choose the mortgage that is right for you -- and what kind of lender to get it from.

There's a lot to learn in this chapter, since there are all kinds of ways to finance your home. We'll tell you about fixed-rate and adjustable-rate mortgages, as well as subprime mortgages for those who have credit problems. We also explain the less-well-known kinds -- jumbo, balloon and others. Finally, we discuss the different types of lends and tell you which ones are the best choices in different financial situations.

What you can expect to learn from this chapter:

Fixed-rate mortgages   The pros and cons of 30-year and 15-year fixed-rate mortgages are explained, as well as the differences in interest paid over the life of the loans. Adjustable-rate mortgages   Adjustable-rate mortgages, or ARMs, move with market interest rates. Here we explain which rates are used and how your payments might be affected. Deciding between an ARM and a fixed-rate mortgage   Now that you know the difference between the two types of mortgages, we'll compare them side-by-side to make it easy for you to decide which to take. Subprime mortgages   Even if you have credit problems, you may still be able to get a subprime mortgage. We explain what these are and what to look out for. Other types of mortgages   We explain the other types of mortgages you've heard about: jumbo, balloon, two-step, assumable, construction and seller financing. Which type of lender is right for you?   This section explains the different types of lenders you might get a mortgage from and which is the best one for your situation. Chapter 2 quiz   Did you learn what you need to know about mortgages? Take this quiz to find out.