Most new homes purchased by individuals are financed, and looking for a mortgage is perhaps the most important step towards owning a home. A lot of preparation is required, especially if one has not dealt with mortgages before. What was once a relatively simple task of comparing fixed rates from among a small number of savings and loan companies is now a much more complex process, with a large number of loan types and loan programs available through hundreds of mortgage brokers, bankers, finance companies, credit unions, and other lenders.

Finding a home mortgage doesn't begin with an application, as many think. It is important to educate oneself first. There is plenty of reliable information available through websites, magazines, books and seminars to facilitate that. One can also consult financial planners or real estate agents.

After receiving the basic education about mortgages, one needs to plan how he or she will fit the mortgage payments with one's current budget and with future obligations 15 to 30 years down the line, depending upon the term of the mortgage.

Mortgages are usually paid off in incremental payments that reduce the principal of the loan. This process is known as amortization. For the initial several years, a huge chunk of your monthly payment goes to pay the interest and a relatively small portion goes towards repayment of principal.

Home mortgages are generally available in two variants, fixed rate mortgage (FRM) and adjustable rate mortgage (ARM). Adjustable rate mortgages are offered at a lower rate of interest, compared to fixed rate mortgages, because the risk on the interest rate changes is born by the mortgagor. If the interest rates rise, the mortgagor ends up paying higher monthly payments. The mortgage rate offered is linked to an underlying economic index and is adjusted periodically, based on the movements in the economic index.

In the case of fixed rate mortgages, the interest rate is fixed throughout the term of the mortgage. For instance, if you are paying a monthly payment of $1000 and your term is 20 years, you will continue to pay $1000 each month for twenty years, regardless of changes in the interest rates.

Whether you opt for a fixed rate mortgage or an adjustable rate mortgage is entirely your choice. However, it has been observed that adjustable rate mortgages are more beneficial when the terms are short. For longer terms, fixed rate mortgages appear to be better.