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15-Year Fixed Rate

• Monthly payment: higher than 30-year fixed
• Interest rate changes: never
• Total interest paid: lower than 30-year fixed
• Risk level: low
• Best for: couples who want stability, can afford higher monthly payments, want to save in the long run, and plan to stay in their home for a long time

30-Year Fixed Rate

• Monthly payment: lower than 15-year fixed
• Interest rate changes: never
• Total interest paid: higher than 15-year fixed
• Risk level: low
• Best for: couples who want stability, prefer lower monthly payments, may need more time to pay for the house they desire, and plan to stay there for a long time

3/1 ARM (Adjustable Rate Mortgage)

• Monthly payment: lower for three years; then may go up, usually tied to the one-year Treasury Bill
• Interest rate changes: fixed for three years; then will fluctuate annually 
• Total interest paid: depends on interest rates, but can be very high after three years
• Risk level: high
• Best for: couples who prefer lower initial monthly payments, but are willing to gamble on future market fluctuations, and plan to move after a few years

5/1 Initial Interest Only ARM

• Monthly payment: low for five years, then sharply increases thereafter when you must pay down interest and principal
• Interest rate changes: fixed for five years, then will fluctuate annually
• Total interest paid: depends on interest rates, but can be very high after five years
• Risk level: high 
• Best for: couples who prefer very low initial monthly payments, are sure they can handle significantly higher payments in five years, and plan to move in a few years

7-Year Balloon

• Monthly payment: lower than all rate packages, then the entire balance of the loan must be repaid or refinanced when the 7 years are up -- typically at a higher rate 
• Interest rate changes: fixed for seven years 
• Total interest paid: depends on rates when balance is due, but could be extremely high
• Risk level: very high
• Best for: couples with a magic crystal ball that shows a) lottery numbers or b) super-low interest rates in seven years

Before Shopping for a Mortgage, You'll Need:

• One month’s worth of recent pay stubs from each earner
• Tax returns and W-2 forms from the past two years
• Three months’ worth of statements from your bank, 401(k), IRA, mutual funds, and stocks
• Three months’ worth of student loan statements or past mortgage payments
• Letter of employment verification
• Letter from financial gift givers, confirming that it’s a gift

-- The Nest Editors

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