Selecting the Best Home Loan for You

There's a definite learning curve when it comes to choosing a mortgage. The world of home loans has its own set of rules and a unique language. If you can gain a general understanding of the basics, however, the process will become much less intimidating.

The ABCs of mortgage loans

What's the difference between fixed and adjustable rates? A fixed-rate means the interest rate remains unchanged throughout the life of a loan. An adjustable rate changes after an initial "teaser" period, which varies from one to seven years. When rates are high, look into an adjustable term. When they're low, strongly consider locking in a fixed rate for the long run.

Should you choose a 15- or 30-year term? The question depends on your cash flow. If you're looking toward retirement and want to wipe the debt-slate clean, the 15-year mortgage is a good choice. Younger homeowners may pick the 30-year term for its lower monthly payments. The shorter the term, the higher the monthly payment.

What is APR and PMI? The Annual Percentage Rate (APR) incorporates all the costs of a loan-fees, closing costs, etc.-in addition to the interest rate. It's designed to help you make an apples-to-apples comparison of mortgage loan packages. Private Mortgage Insurance (PMI) is a fee that you'll pay if a loan exceeds 80 percent of a home's value. Once you've built up equity in your home, you can refinance that expense away.

How do you find the right lender? Treat your search for a lender like you would any high-ticket purchase. Shop multiple sources. Get a variety of quotes on mortgage rates and costs. Ask for referrals from your friends. And trust your instincts: If someone is offering something too good to be true, it probably is.

The above insights will help you get started. Now it's up to you to dive deeper into the mortgage world. Keep learning: Your time spent studying will save you mortgage dollars in the long run.