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Fixed-rate or conventional mortgage:

The fixed-rate loan is the most popular and traditional mortgage. In a fixed-rate, the interest rate stays the same for the period of the loan, usually 15 or 30 years. Principal and interest payments remain the same month-to-month, year-to year. A down payment of 5 to 20 percent is usually required.

Thirty-year mortgages offer low down payment options, as well as scheduled, low monthly payments.

In a 15-year mortgage, equity builds quickly. It also offers substantial savings in interest as well as lower interest rates than a 30-year mortgage.

Adjustable Rate Mortgage:

More popular than ever, ARMs are mortgages in which the interest rate is tied to a financial index such as Treasury Bonds or Cost of Funds. Monthly payments can vary over the life of the loan, usually 25 or 30 years. Most ARMs have rate caps, which determine the maximum change allowed in interest during a set period. most also have lifetime caps, a maximum interest rate allowed during the loan's life span. ARMs usually offer lower down payments, making it easier to qualify for a larger loan. Some ARMs have balloon payments at the end of the loan's term.

Key words in ARM mortgages include the index, a measure of interest rate changes used to determine change in an ARM's interest rate, and the margin, the number of percentage points a lender adds to the index rate to calculate the ARM's interest rate.

Two-step loans:

A hybrid of the fixed-rate mortgage and an ARM, two-step loans begin with stable, low payments for five or seven years. After that period, they revert to a fixed- or adjusted-rate mortgage. Two-step loans are popular because the average American moves every seven years; buyers figure they will sell their home about the time higher payments kick in. These loans also are appealing because most buyers' incomes increase by the time the payments rise.

Jumbo loans:

Loans for more than $207,000. These are specialized loans that offer as little as 10 percent down and no additional points or higher interest rates.