Last week we looked at ways to make monthly payments more affordable. We examined loan term, interest rate, and the loan amount itself as key factors influencing your monthly payment.

But there are other factors that come into play when trying to make sure your loan payment is the most affordable it can be. And though they may seem obvious to the experienced home owner, they are well worth covering for those just starting the journey to home ownership.

First, there is the type of loan that you choose. As you begin talking to your home lender, you will soon find that there is a wide variety of loans available to you. One of today’s most popular loans is the "interest only" adjustable rate loan, which features low monthly payments of interest only, plus an extremely low "starter" interest rate.

Because the rate may change frequently, your starter rate may be as low as 3%. But you should know that the interest rate is based on an index set half a world away. It’s called the LIBOR, which is short for London Inter-Bank Offered Rate. It is the rate of interest that banks in London charge each other for overnight deposits of dollars.

Because the business climate in Europe has been depressed for several years, comparatively few businesses have been borrowing to expand, so funds to lend are plentiful. Thus, rates have been and continue to be low. But when the economy of Europe takes off, it is only logical to assume that demand for these funds will rise over time.

These loans are popular for two reasons: low initial starting rate, coupled with no principal repayment whatsoever. And that is exactly why I can not recommend these loans to you.

First, the interest rate is bound to go up over time, and many of these loans have no caps or ceilings built in to limit the amount of payment increase. If you are already on a tight budget, a substantial increase in monthly payment could spell disaster.

And second, by eliminating principal repayment from your monthly obligation, you are counting entirely on appreciation to build your net worth in real estate. And that may not be enough.

The time may come when you want to sell, and if you owe the same amount then that you did on the day you purchased, you may not have enough equity in the property even to pay a real estate commission or cover other expenses of a sale.

I am aware that the principal portion of a traditional loan is very small in the early years, but it still builds over time, and the payment differential is almost nothing.

Call me old-fashioned, but I am just much more comfortable with a thirty year fixed rate loan, especially in the face of an improving worldwide economy and a reasonable expectation of rising interest rates.

Another factor in making your monthly rates more affordable is the degree of risk the lender associates with your application. In other words, how likely is it that you will pay back the money on time?

This factor is measured in terms of your credit score, which is a three digit number somewhere between 300 and 900. A score of 750 or higher is considered excellent, and a score below 620 will cause your interest rates to be higher. The scores are calculated by a company called Fair, Isaac & Company, and are based entirely on information in your credit report.

So how can you boost your credit score? There are really only three things you can do:

* First, you can correct any errors that exist in your credit history. Copies of your credit history are free from each of the major credit reporting agencies, and they will work with you to correct factual errors.

* Second, you can contact merchants who are reporting negative information regarding you and request that they modify their records based on your specific circumstances.

For example, if you were late on a car payment because you were called to active duty in the military, a lender might be willing to modify their records as an accommodation for your service to your country. Likewise, a major medical challenge might be taken into consideration by a creditor, especially if you could prove a hardship. Creditors have wide latitude as to how they report negative information.

* Finally, Fair, Isaac & Company reports that the most important action you can take to improve your credit score is to use credit wisely, not become overextended, and to pay your monthly obligations on time, each and every month.

For more information on credit scoring, visit my website at www.money99.com and download the free "Credit Scoring Booklet" from Fair, Isaac & Company. It is an excellent introduction to the topic of credit reporting and lending.

By selecting the correct type of home mortgage loan, and keeping your credit score as high as it can be, you are most likely to end up with an affordable and comfortable home loan payment.