Now that you’ve found a home, you need to find a way to finance it. But how do you know what kind of mortgage you need to get? Well, traditional thinking says that you should always get a traditional 30-year amortizing fixed rate mortgage. But everyone has different needs and no lender should put everyone in a “one size fits all.”

These days, there are several mortgage loans that fit many different people for various reasons. But there are three basic types of mortgages that you should be aware of: fixed-rate, adjustable rate, and interest-only.

Fixed-Rate Mortgages

As the name suggests, a fixed-rate mortgage has a fixed interest rate over the life of the loan. They are commonly available as 15- and 30-year terms, though they are also available with 10-, 20-, 25-, and 40-year terms. Your loan balance is amortized over the life of the loan which means your payment is fixed for the life of the loan. So, for example, if you had a 30-year fixed-rate mortgage, you would make 360 equal principal and interest payments – one payment a month for 30 years-to pay off your loan.

The most obvious advantage to a fixed-rate mortgage is that your rate and payment never change. If you plan to stay in your home for 10 years or more, a 30-year fixed-rate mortgage might be right for you. But you might choose a different mortgage term depending on your goal. If your goal was to pay off your mortgage faster, you might choose a 10- or 15-year term. If you don’t plan on moving and wanted a lower payment than what a 30-year mortgage payment would offer, you might choose a 40-year term, since your payments would be lower as it is amortized over 40 years, rather than 30.

Adjustable Rate Mortgages (ARMs)

Adjustable rate mortgages are just that – mortgages with an adjustable interest rate. They are generally shorter-term than fixed-rate mortgages, usually with 1-, 3-, 5-, or 7-year terms, and offer lower interest rates than a fixed-rate mortgage. If you have an ARM, your interest rate is fixed for the first 1-, 3-, 5-, or 7-years. After that, your rate generally adjusts once a year within a two percent cap. It can adjust up or down, depending on the market.

Most Americans move out of their homes within seven to nine years. Adjustable rate mortgages can be very good if you know you’re going to move within that time period and are looking for a lower rate and payment.

However, this type of loan is a bit more of a gamble since your interest rate adjusts after the initial fixed years of the loan. So anyone who gets this loan should be more comfortable with risk, since you don’t know whether your rate will go up or down.

Download the Consumer Handbook on Adjustable Rate Mortgages.

Interest-Only Mortgages

“Interest-only” means that for a specified period of time during the loan, you are allowed to make payments that cover only the interest portion of your monthly mortgage payment. This can significantly lower your payment if your budget is tight for that month. However, you can add as much as you like to your payment and that amount will be applied toward your principal balance.

The concept of “interest-only payments” is more like a feature that comes with a loan, rather than a loan itself. Like buying a car with leather seats, you can get fixed-rate or adjustable rate mortgages with an interest-only payment. QL offers loans with an interest only period.

Interest-only loans can be greatly beneficial to people who value increased cash flow. You might want to shift the money you would be paying toward your principal balance toward something else – you might want to contribute more toward your 401k or pay off other bills for instance. It can also be a way to be able to afford a larger home when you know you can depend on an increased salary later on.

One myth about interest-only loans that seems to be circulating is the idea that you’re not building equity if you’re not paying anything toward your principal. This isn’t necessarily true since most homes tend to appreciate in value. So even though you’re not paying off principal, you’re still building equity through home appreciation.

Your particular circumstances and your financial goals are factors that should definitely drive which type of mortgage you choose. Having the right mortgage can greatly benefit you just as having the wrong one can cost you. Do your homework and talk to a mortgage banker to find out which loan is right for you.