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How to Choose the Right Mortgage Loan

Learn more about common mortgage terms and how to choose the right one for you.

Shopping for a mortgage can be stressful, especially if it’s your first home. From confusing terminology to difficult-to-compare differences, the process can make your head spin. To understand the process, there are a few concepts you should be familiar with. In addition, there are some general steps to follow to get you in the right home with the right loan.

To help you through the process, we’ve developed this guide. It covers some general definitions and some guidelines, from setting a budget to shopping for a mortgage.

Understanding the Basics

There are some common terms that you’ll hear again and again when shopping for a mortgage. It’s important to be familiar with these so that you can speak the language of the lenders when shopping, negotiating and closing.


This is the most important term to understand. “Mortgage” and “mortgage loan” are used interchangeably. These terms refer to loans that are used to purchase a home.


The principal is the loan balance before interest and other fees. In other words, it’s how much money you are asking for to purchase the home.

Interest rate

Your mortgage’s interest rate is the cost to borrow money, as a percentage of the principal. It’s how much interest will be charged. (This differs from the APR.)


APR stands for annual percentage rate. This is the total cost of the mortgage and takes into account the interest rate and any other fees and charges associated with the mortgage. When comparing two mortgages, it’s best to compare the APR, as it is all-inclusive.


The term of the mortgage is the period of time during which you will be paying off the mortgage. Many mortgages are 30 years long, but other common periods might be 10 or 15 years.

Down payment

The down payment is the amount of money you pay upfront when you purchase a home.

ARM vs. fixed rate

When you get a mortgage, the rate will either be fixed or adjustable. A fixed-rate mortgage is one where the APR remains the same for the entirety of the mortgage’s life. A variable-rate mortgage or adjustable-rate mortgage (ARM) is one where the interest rate can vary over the life of the mortgage, usually within some boundaries.

Choosing a Mortgage With a Set Budget

When preparing to shop for a home, it’s a good idea to take some time to seriously consider your budget and how much you can afford. It’s also best to do this before you start shopping for a home so you don’t fall in love with a house far outside of your price range.

A mortgage qualification calculator can help you calculate how much home you can afford based on your income. Remember, though, that you will want to leave space in your budget to finance the things in life you enjoy. So while a calculator can help you understand how much you can afford, you’ll want to balance this with how much house you actually need.

Types of Mortgage Loan

Depending on your current financial situation, there may be different mortgage types available to you. Certain mortgage programs available from the US government can help buyers purchase a home if they meet specific requirements. Typically, loans backed by the government come with low down payments and lower APR.

  • FHA Loans are available to help buyers who have low credit scores or poor finances to afford a mortgage. These are backed by the federal government.

  • VA Loans are available for service members in the US.

  • USDA Loans are available for homes that are located in rural areas.

  • Most people will opt for a conventional mortgage through a private lender or financial institution (ahem). However, even with a conventional loan, there are lots of options!

To understand whether you qualify for a special mortgage type, reach out to a member service representative or loan officer to discuss your situation.

Shopping for a Mortgage

Now that you know how much you want to spend — and now that you understand what types of loans you qualify for — it’s time to start shopping for a mortgage.

As is the case with any purchase, the more you shop around and compare prices, the more likely you are to get a great deal. You can look for mortgages through a range of lenders, including banks, online lenders, and credit unions. As you shop, you’ll want to keep track of the various mortgages you come across and take note of the pros and cons. It’s a good idea to keep a spreadsheet of the options you find.

Once you’ve found a few mortgages, you can apply for pre-approval. Pre-approval is a process whereby a lender looks into your finances and decides how much of a mortgage you can get approved for and under what circumstances. You can also use a mortgage loan calculator to understand how your final offers differ.

Start Shopping for a Mortgage Today!

If you’re ready to start looking for a mortgage, you can start at Listerhill Credit Union. We offer competitive rates for our members, and becoming a member is easy!

See our low rates and easy pre-approval process.

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Frequently Asked Questions

  • How am I eligible for membership at Listerhill if I don't live near a branch?

    You can become eligible for membership at Listerhill anywhere in Alabama if you join the Alabama Consumer Council or the Athens State Alumni Association. In Tennessee, you can also become eligible for membership if you join the Athens State Alumni Association. This membership is initiated at no cost to you and doesn't require any setup on your part outside of the normal application process to become a member of Listerhill.

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  • The Great Giveback Official Rules

    1. Eligibility: No purchase or obligation necessary to participate and win. All participants must be 19 years of age or older at time of contest participation. Employees of Listerhill Credit Union are not eligible to register for the contest.

    2. How To Enter the Contest: All Listerhill members who have consumer loans in good standing, (subject to limitations below) are automatically entered. Anyone who takes out a new loan with Listerhill Credit Union, or refinances a loan from another lender with Listerhill Credit Union (subject to limitations below) will automatically be entered to win. Limit of one entry per loan.

    NO PURCHASE NECESSARY: To enter the contest without a loan, send a self-addressed, stamped envelope to: Listerhill Credit Union, P.O. Box 566, Sheffield, AL 35660, Attn: Great Giveback Contest Entry. Limit one entry per person. Written entries must be received no later than July 3, 2021.

    Listerhill Credit Union will not be responsible for incomplete, lost, late, misdirected or illegible entries or for failure to receive entries. All entries become property of Listerhill Credit Union and none will be returned. Any questions regarding the number of entries submitted shall be determined by Listerhill Credit Union in its sole discretion, and Listerhill Credit Union reserves the right to disqualify any entries by persons determined to be tampering with, violating, or abusing any aspect of the contest.

    3. Contest Entry Requirements: In the event the Credit Union, in its sole discretion, determines that any Entry contains content that does not comply with these Official Rules or does not otherwise comply with regulatory guidelines, Credit Union reserves the right to disqualify the entry.

    4. Determining the Winner: A Credit Union employee will select at random four (4) $500 winners (one per day July 12-15) and one Grand Prize Winner from all entries received on July 16, 2021. You do not have to be present to win.

    5. Prizes: $500 Cash Prize: the Credit Union will award four (4) members with $500 cash each. Grand Prize: The Credit Union will pay up to $25,000 toward your loan with Listerhill Credit Union, or combination of loans. No loan payments will be made to loans with any other lender. No cash equivalent provided, and the total prize amount may be less depending on the outstanding amount of loan balance(s) with Listerhill Credit Union. In no event will the prize awarded exceed the total amount of the winner’s outstanding balance of qualifying loans with Listerhill Credit Union. Federal, state and local taxes are the sole responsibility of the winner. IRS regulations require the Credit Union file a 1099 on behalf of the winner.

    A Credit Union employee will call the prize winners and the prize winners will be called up to five times during regular business hours at number provided on entry form and will leave no messages. Failure to reach winner during these calls may result in disqualification of winner, forfeiture of his or her interest in all prizes, and selection of a substitute winner drawn from the drum. Winner will be required to schedule a time, at least 48 hours in advance, to visit Listerhill Credit Union, located at 4790 2nd Street, Muscle Shoals AL, 35661 in person, during regular business hours within seven (7) days of being notified to claim prizes by providing proof of eligibility for prize won and completing and signing an affidavit of eligibility and a liability and publicity release. Failure of any Winner to timely contact the Credit Union, visit the above Credit Union office in person and sign and return any required affidavit and release, or to claim a prize or comply with any term or condition of these Official Rules, will result in drawing Winner's disqualification and the forfeiture of his or her interest in the prize. Winners may waive their right to receive prizes. Prizes are non-assignable and nontransferable. No substitutions allowed by winner.

    6. To be eligible to win, all loans must be in good standing (not more than 30 days past due at the time of drawing. Eligible loans are limited to auto loans (no indirect dealer loans), personal loans (no loans secured by real property, such as mortgages, 2nd mortgages, and Home Equity Lines of Credit) and recreation loans made to consumer borrowers (not business or commercial loans).

    6. Participation. By participating, entrants agree to be bound by these Official Rules and the decisions of the Contest. Except where prohibited, acceptance of any prize constitutes winner's consent to the publication of his or her name, biographical information and likeness in any media for any commercial or promotional purpose, without limitation the Internet, or further compensation. Prizes not won and claimed by eligible winners in accordance with these Official Rules will not be awarded and will remain the property of the Credit Union.