Picking the right mortgage

Interest rate and term of loan are fixed in advance and do not change over the length of the loan.
PRO: Security of having monthly payment that will not change, even if rates increase.
CON: Stability has a cost, in the form of a higher rate; payments don't go down if rates fall.
BEST FOR: Risk-averse borrowers.
TIP: Tried and true; still the best option for borrowers whose top goal is security of knowing their payment will never change.
Examples
30-year fixed: Most traditional of the traditional loans.
Rate: 5.875 pct. Monthly payment: $883
40-year fixed: By stretching the repayment period, the payment is lower. But equity builds more slowly, and the borrower's total cost over time is much greater. Rate: 6.25 pct. Monthly payment: $848
15-year fixed
Much higher payment, but much shorter payoff period; lower payback over time. Rate: 5.25 pct. Monthly payment: $1,200
ADJUSTABLE
Term of loan is set in advance, but after an initial period, the rate varies.
PRO: Lower initial rate means lower monthly payment, or the ability to afford a larger loan; if rates fall, the payment falls.
CON: If rates go up, the payment increases.
BEST FOR: Those who want a lower initial payment; can tolerate the risk of increased rates; are likely to sell or refinance before the rate adjusts.
TIP: Understand how the rate is adjusted, such as by being based on U.S. treasury bonds.
Examples
1/1: Rate fixed for one year, followed by annual adjustments. One of the lowest available.
Rate: 4.875 pct. Monthly payment: $790
3/1: Intermediate option for adjustables; rate fixed for three years, then adjusts annually.
Rate: 5.0 pct. Monthly payment: $801
7/1: Rate fixed for seven years, then adjustable annually. Longer preadjustment term carries higher beginning rate.
Rate: 5.375 pct. Monthly payment: $836
HYBRID
Initial period of level payments--typically five to 10 years--followed by refinancing, loan payoff, or conversion to straight fixed-or adjustable-rate loan.
PRO: Lower initial rate; steady monthly payment for an extended period.
CON: Rates can be higher at time of refinancing or conversion; during the initial period, payment doesn't fall if rates do.
BEST FOR: Those wanting a midrange option between fully fixed and adjustable.
TIP: Can be a better fit than traditional loans.
Examples
Interest only: Initial payments are for interest due, so balance does not decrease. Lower payments initially, but the total payout can be much higher. For six-month initial period--Rate: 4.0 pct. Monthly payment: $498
Hybrid: Begins as fixed or adjustable, then converts into opposite. For five-year fixed rate, converting to 25-year adjustable--Rate: 5.5 pct. Monthly payment: $848
Balloons: After initial period, typically five or seven years, loan balance must be paid off; could mean selling the property. Rate: 5.5 pct. Monthly payment: $847