Ten Key Factors When Applying for a Mortgage Loan

8. Think About What Kind of Mortgage You Want

Mortgages fall into one of two broad categories: fixed-rate mortgages and adjustable-rate mortgages, or ARMs. The length of mortgage terms, or how many years until the mortgage is paid off, also varies, ranging from the traditional 30-year mortgage to shorter term loans of 10, 15, or 20 years.

To decide which type is best for you, think about your risk tolerance and how long you plan to stay in the home. A fixed-rate loan eliminates the risk that rates could rise in the future, thus raising your mortgage payment. However, rates could also fall, which would lower your payment. Meanwhile, if you plan to be in the home for a relatively short period of time, you could benefit from a short-term ARM, since interest rates on ARMs are generally lower than on fixed-rate loans.