A mortgage is actually a loan from an institution or bank, which helps a borrower to buy a house. The collateral for this loan is the house itself, which means that if the borrower defaults on his/her loan and doesn't pay back the lender, the bank can auction the house and recover its cash. Banks and other lending institutions offer various different types of mortgages. Each one varies slightly from the other in terms of interest rates and payment terms. Here are some pointers to help you choose the right mortgage for your needs:

* Balloon mortgage. Balloon mortgages refer to those with adjustable interest rates. Generally, these mortgages have fixed rates for a set period of time, during which the interest rate is raised or lowered by the federal government according to market predictions. When the rates rise, homeowners benefit, since their mortgages are reset at a lower interest rate. On the other hand, when they lower, borrowers pay more.

* Escrow mortgage. An escrow mortgage is an arrangement between the lender and the homeowner wherein the lender agrees to payoff a percentage of the monthly mortgage amount in return for regular monthly payments from the homeowner. escrow payments may take the form of a lump sum, monthly payments, or some combination thereof. Lenders usually require homeowners insurance as a condition of entering into this type of mortgage.

* Fixed-rate mortgage. Unlike an adjustable-rate mortgage, a fixed-rate mortgage has a definite interest rate. Homeowners are stuck with this interest rate for the life of the mortgage, although interest rates are sometimes released periodically by the federal government to help stabilize the economy.

* ARM. An adjustable-rate mortgage, also called an ARM, has no maturity date and does not fluctuate with the federal interest rate. A fixed-rate mortgage typically expires after 30 years. Most borrowers prefer the stability of an ARM; however, they may not be able to secure the loan amount if interest rates drop much lower than the amount they paid toward their mortgage. Some ARM programs allow borrowers to convert their adjustable-rate mortgages into fixed-rate mortgages as well.

* Down Payment. The down payment is the initial down payment for a mortgage. Down payments vary greatly; some require no down payment at all, while others require a specific amount of money down on the house in question. Having a good amount of money down on the house, can save the buyer several thousand dollars from closing costs and the potential loss of property if he or she folds quickly. For buyers who plan to stay in the house for many years, this is definitely a good feature to look for in a mortgage.

* Interest Only Mortgage. An interest only mortgage requires the borrower to make interest payments only for a specified period of time, usually 30 years. This option allows the borrower to build equity faster than with a traditional mortgage, but has a significantly higher monthly payment at first. Interest only mortgages are often good for borrowers who want to build their equity quickly and whose income will not support larger monthly payments for several years.

* Property Taxes. If a property is owned for only a few years and is not purchased with the intent to sell, most lenders will accept a lower monthly mortgage payment as long as the property taxes stay low. The lender will then add the tax amount to the mortgage amount, so that the final mortgage payment reflects the combined total of property taxes, the remaining loan balance, and the interest earned.