Choosing the Mortgage Option For You 

Understanding the Most Common Mortgage Options

and Making an Informed Choice 

Brought to you by 
Choosing the Mortgage Option for You 

If you are financially ready to purchase a home and take on the responsibilities of homeownership, you’ll need to understand the different mortgage 

products available to you. Take the time to learn all about the components 

of a mortgage and about the most common types of mortgages. 

Common Mortgage Products 

There are many types of mortgages available to you. 

It’s important that you shop around to find the mortgage that’s right for you. Some of the most common 

mortgages available today include (but are not limited 

to) the following: 

Fixed-Rate Mortgage 

Fixed-rate mortgages are the most common mortgage 

products available. Because your interest rate never 

changes, the monthly principal and interest payment 

remains the same for the entire term of the loan — 

whether it’s a 15-year, 20-year, or 30-year mortgage 

— allowing for more predictability in your monthly 

housing costs. Fixed-rate mortgages are the most 

stable type of mortgage. 

Adjustable-Rate Mortgage 

Adjustable-rate mortgages (ARMs) may start with 

a lower interest rate, making your initial monthly 

payments lower. However, unlike a fixed-rate mortgage, 

your interest rate will adjust periodically, based on an 

index that reflects changing market interest rates. Bear 

in mind that if the interest rate adjusts upward, so will 

your monthly payments. 

Government Programs 

The Federal Housing Administration (FHA), U.S. 

Department of Veterans Affairs (VA) and the Rural 

Housing Service (RHS) also offer mortgage products for 

borrowers that meet certain requirements. 

 FHA Loans. The FHA, part of the U.S. Department 

of Housing and Urban Development (HUD), insures a 

home loan, so your lender can offer you a loan pack

age that may include lower down payments. 

 VA Loans. The VA guarantees VA loans to make 

housing affordable to eligible U.S. veterans. You can 

apply for a VA loan with any mortgage lender that 

participates in the VA home loan program. 

­

 RHS Loans. RHS loans are primarily used to help 

low-income individuals purchase homes in rural 

areas. Funds can be used to build, repair, renovate, 

or relocate a home, or to purchase and prepare sites. 

Freddie Mac Relief Refinance MortgagesSM 

Freddie Mac’s Relief Refinance Mortgages provide 

eligible homeowners who are making timely mortgage payments with expanded access to refinancing 

opportunities. This includes those homeowners who 

have not been able to take advantage of current low 

interest rates because they have little or no equity in 

their home. Please contact your lender for additional 

information and eligibility requirements. 

Components of a Mortgage 

Payment 

The following costs are generally reflected in your 

mortgage payment: 

 Principal. The principal is the amount of money 

borrowed to buy your house. 

 Interest. Interest is the cost you pay to borrow 

money from the lender, usually expressed as a 

percentage of the amount borrowed. 

 Taxes. Your lender will typically include 1/12th of the 

estimated annual real estate taxes on the home you 

purchased. They will put this 1/12th in an escrow 

account each time you make a payment so they can 

pay your taxes when they’re due. 

 Homeowner’s Insurance. Your payment will also 

include 1/12th of the annual homeowner’s insurance 

premium. Your lender will put this money into an 

escrow account and pay your homeowner’s insur

ance on your behalf when it is due to your insurance 

company. 

­
 Mortgage Insurance. If your down payment is less 

than 20 percent, your lender will require private or 

government mortgage insurance. Just like your taxes 

and homeowner’s insurance, 1/12th of the annual 

premium will be included in your monthly payment 

and placed into an escrow account. 

 Homeowner’s Association Fees/Condominium 

Fees. Most neighborhoods, and all condominiums, 

have a homeowner’s association (HOA) that maintains common areas, manages trash and snow 

removal, and helps enforce regulations set forth by 

the neighborhood or condominium developer. If you 

have a HOA, you’ll need to pay a regular fee to the 

association to help cover expenses. 

 Escrow. The escrow is money or documents held 

by a neutral third party prior to closing. It can also be 

an account held by the lender (or servicer) into which 

a homeowner pays money for taxes and insurance. 

Shop Around for the Best Option 

There are many types of mortgages available to you. It’s 

important that you shop around to find the mortgage 

that’s right for you. The mortgage rate and length, 

or term, as well as points you will be charged are all 

factors in deciding which mortgage to choose. Keep in 

mind that the lowest mortgage rate may not always be 

the best choice. Rates are important, but also consider 

the overall cost of the loan. Contact your lender today 

to find out what mortgage product is best for you. 

For More Information 

 The Freddie Mac CreditSmart® curriculum is a 

consumer guide to better credit, money management, and responsible homeownership. Visit 

FreddieMac.com/creditsmart to download 

consumer resources, available in five languages. 

 “About Homeownership” is the Freddie Mac online 

guide to the homebuying process and successful 

homeownership. Visit FreddieMac.com/ 

homeownership. 

 Avoid scam artists! Learn about common scams in 

your area, and get advice before you enter into your 

next loan agreement. Find out more about common 

fraud schemes at FreddieMac.com/avoidfraud. 

 To find a HUD-approved housing counseling agency 

near you, visit www.hud.gov or call 800-569-4287. 

 Your Step-by-Step Mortgage Guide helps homebuyers navigate the entire mortgage process 

from mortgage loan application to closing. Visit 

FreddieMac.com/homeownership/pdf/stepby-step_mortgage_guide.pdf to download this 

easy-to-use resource. 

Source 

Content adapted from Freddie Mac’s award-winning CreditSmart, a multilingual financial education curriculum designed to help 

consumers build and maintain better credit, make sound financial decisions, and understand the steps to sustainable homeownership. 
Brought to you by 

Publication Number 826 n © Freddie Mac, December 2016