I am a first time home buyer. What are the different kinds of
mortgages out there? What are the different parameters that I must
keep in mind when selecting a mortgage? How does percentage of down
payment affect interest rates? 

There are many kinds of home mortgages, the two most common being the
fixed rate and variable rate mortgages, which can come in various
durations (most commonly 30 and 15 year).  A fixed mortgage rate has a
fixed interest rate throughout the course of the loan.  For example,
if a 30-year mortgage for $200,000 has a 10% interest rate, you'll end
up paying a fixed amount for each month for 30 years (for a total of
360 payments).  The monthly rate would be $1,755.14.  Note that in
such a scenario you would be paying a total of $631,850.40 (calculated
by taking the total paid per month times the number of months you have
to pay, 360). Since your initial mortgage was for $200,000, you'd be
paying $431,850.40 of interest over the 30 years.

With a 15 year rate you would end up paying less total interest (since
you're borrowing for less time).  Oftentimes lenders will also give
you a lower interest rate for a 15 year mortgage, because they'll see
their money back sooner.  Assume, though, that you did a 15 year fixed
mortgage at 10% - your monthly payment would be higher because you'd
be paying back the loan faster (a monthly payment of $2,149.21), but
the total interest you'd be paying would be less than the 30 year
equivalent (a mere $186,857.83 of interest in the 15 year fixed).

One thing to note is that with these loans the interest is preloaded,
meaning for the first number of years the majority of your monthly
payment will be paying off the interest, while only a small portion
will be paying off the principle.  Going back to our 15 year, 10%
fixed rate example, it means that after the first year you would have
paid $25,790.52; however, of the ~$25k, $19,727 would go to paying
down interest, while a mere $6,000 would be paying down the principle.
 At the end of the year, after paying $25k, you'd still owe $194,000
on your principle.

If you're wondering where I'm getting all these numbers, pay a visit
to:
http://www.interestratecalculator.com/mortgage/mortgage.html

It's a Java applet that allows you to tweak various variables - it
assumes a fixed interest rate mortgage, but you can alter variables
like interest rate and the loan duration, and then you can view the
figures based upon these initial settings.

Variable mortgages, as their name implies, have their interest vary
over time.  Usually what happens is the lender specifies a margin and
an adjustment time.  A margin might be something like 2.00%, and the
adjustment time might be 12 months.  So, every 12 months your
mortgage's interest rate would change to the current index rate plus
2.00% (the current index rate usually being the interest rate
specified by the Treasury index).  With a variable rate your interest
rate will rise or (hopefully) fall every year.  This is a good option
if interest rates, when you want to buy your home, are very high.  If
interest rates are at a low (as they are now), then, in theory, the
only way they're going is up, so a variable loan might not be the best
option.  Also, many of these loans can be refinanced when interest
rates are low into a fixed mortgage.  There are variable loan
calculators available on the Web, see:
http://www.empirenow.com/java/MortgageAdjustable.html

There are also a number of other types of loans, such a Balloon Loans
(see http://nt.mortgage101.com/partner-scripts/1026.asp?p=mtg101) and
reverse loans (see http://nt.mortgage101.com/partner-scripts/1212.asp?p=mtg101),
but chances are if you are a first time buyer purchasing a primary
residence, these types of loans are not for you.

To answer the last part of yoru question, if you pay down part of the
down payment (points, the call it), you will likely see a decrease in
the loan amount.  For example, a lender may say, "Pay down one point
(1%) of the mortgage and I will lower the interest rate from 7.125% to
7.00%."  To calculate if the increased down payment is worth the rate
reduction, use a mortgage calculator.  You may find that paying down
the point, which may cost, say, $2,000, will only save you, say $10 /
month, meaning it's going to take almost 17 years to make back what
you paid down (chances are you could double the $2,000 you saved in 17
years by just placing the money in an FDIC insured CD or money market
account).

If you have any further questions or need any clarifications, just
ask!

---

Clarification of Answer by skmitchell-ga on 25 Apr 2002 20:21 PDT

This really doesn't have anything to do with the types of loans or
your question directly, per se, but one thing to keep in mind is
closing costs.  There are a ton of "hidden" fees associated with
buying a property that include Title Insurance, county/city taxes,
escrow fees, property tax, etc.  The rule of thumb is to be ready to
pay around 2% of the cost of the property in closing costs.

Also, regarding mortgages: one option is to hire a mortgage broker. 
They usually charge about 1% of the loan (meaning a $200,000 will cost
you $2,000), but they take the hassle out of getting a loan and can
answer all your questions for you.  Furthermore, they may be able to
get you a lower interest rate than what you can get.  (Of course that
1% is a pain to pay!)  :-)

I am not employed by, nor do I have I used their service, but I listen
to a radio station that hosts the company called Texas Home Lenders. I
have found their advice to be very worth while. They are not only for
the state of Texas, they say. http://www.texashomelenders.com/

If you are a first time home buyer, you may be eligible for a FHA
insured loan.  Although this loan carries a slightly higher interest
rate ( about a quarter of a percent) there are several advantages to
this kind of mortgage.  First, there is a process called streamline
refinancing that allows you to continuously apply for a lower rate
when available with no out of pocket costs and no credit check. 
Second, this mortgage is much easier to qualify for.  There is a major
drawback, however, and that is in the amount you are allowed to
borrow.  The limit is different according to geographical location. 
Here is a website with more information.

www.fhalibrary.com/

Hey ag-ga, keep in mind that lately the price of homes, especially
homes for the first time buyer, continue to go up in price; seems
almost exponential at times (depending upon where you live in the US).
 Unless a ceiling is soon hit on these types of homes, just keep in
mind that if you try to save another $5000 to add to your downpayment,
your may pay more than that in the value of the home.  In other words,
waiting 6 months to have a bigger downpayment may actually hinder
rather than help your efforts.
ps: Here is a fun site I ran across to determine loan payback rates. 
It'll work for any type of loan you may get.  And NO, I have no
affiliation to this site.
http://www.jeacle.ie/mortgage/us.html

Something else to keep in mind (isn't all this fun?) is that lenders
will generally charge you PMI, or private mortgage insurance, if your
loan is greater than 80% of the value of the property (i.e., you don't
put at least 20% down).  This insurance is basically against you
defaulting on the mortgage, since you don't have as much reason to pay
it off if you haven't invested much.

You're only stuck with PMI until your mortgage prinicpal balance is
less than 80% of the value of the property , which can happen in one
of two ways:  Either you pay it down, or you get your property
reappraised after it appreciates in value--so that the increase in
value "outgrows" the balance.

Hope this helps.  A great resource for home-buying and mortgage
information can be found at:

http://www.fool.com/homecenter/homecenter.htm