| Which loan is right for me? |
|
|
| Years you plan to stay in the home |
Recommended program |
|
| 1-3 years |
3/1 ARM, 1 year ARM or 6 month ARM |
|
| 3-5 years |
5/1 ARM |
|
|
| 5-7 years |
7/1 ARM |
|
|
| 7-10 years |
10/1 ARM, 30 year fixed or 15 year fixed |
|
| 10+ years |
30 year fixed or 15 year fixed |
|
|
|
| Loan Program |
Advantages |
Disadvantages |
|
| Fixed Rate Mortgages |
Monthly payments are fixed over the life of the loan |
Higher interest rate |
|
| 30 year fixed |
Interest rate does not change |
Higher mortgage payments |
|
| 15 year fixed |
Protected if rates go up |
Rate does not drop if interest rates improve |
|
| |
Can refinance if rates go down |
|
|
|
| Loan Program |
Advantages |
Disadvantages |
|
| Adjustable Rate Mortgages (ARM) |
Lower initial monthly payment |
More risk |
|
| 10/1 ARM |
Rates and payments may go down if rates improve |
Payments may change over time |
|
| 7/1 ARM |
May qualify for higher loan amounts |
Potential for higher payments if rates increase |
|
| 5/1 ARM |
30 year term, no balloon payment |
|
|
| 3/1 ARM |
|
|
|
| 1 year ARM |
|
|
|
| 6 month ARM |
|
|
|
| 1 month ARM |
|
|
|
|
| Loan Program |
Advantages |
Disadvantages |
|
| Balloon Mortgages |
Lower initial monthly payment |
Risk of rates being higher at the end of the initial fixed period |
|
| 7 year |
Lower payment for a predetermined period of time |
Risk of foreclosure if you cannot make balloon payment, refinance, or exercise the conversion option |
|
| 5 year |
Many balloon mortgages offer the option to convert to a new loan after the initial term |
Balloon payment requires you to sell or refinance after the term, as opposed to a 7/1 or 5/1 program with a 30 year term |
|
|
| Loan Program |
Advantages |
Disadvantages |
|
| First Time Buyer Programs |
Lower down payment |
May be subject to income and property value limitations |
|
| Easier to qualify |
Some government subsidized programs may generate a recapture tax if you sell the house too soon |
|
| Lower rates may be available |
Education courses may be required to qualify for these loans |
|
|
| Loan Program |
Advantages |
Disadvantages |
|
| Stated Income Programs |
Don't need to verify income |
Higher rates |
|
| Faster approval |
Higher down payment |
|
| Good for borrowers who may not qualify with a full income documentation program |
|
|
|
| Loan Program |
Advantages |
Disadvantages |
|
| Interest Only Programs |
You have several payment options |
Higher rates |
|
| Lower monthly payments |
Principal loan balance will not decrease during the interest only payment period |
|
| Qualify for a higher loan amount |
Payment will be higher for the remaining term |
|
| Qualify at the interest only payment |
|
|
| Option to pay the full normal payment |
|
|
| Interest only payments for up to ten years |
|
|
|
| Loan Program |
Advantages |
Disadvantages |
|
| No point, No fee Programs |
No out-of-pocket loan costs at closing |
Higher rates |
|
| Closing costs are paid from the lender rebate |
Higher payments |
|
| Less money required to close |
Some lenders may have a short payoff penalty which is usually charged to the loan broker, but may be passed on to you |
|
| Refinance without increasing your loan amount |
Some require a prepayment penalty for the first one to five years |
|
|
| Loan Program |
Advantages |
Disadvantages |
|
| Home Equity Line of Credit |
You only borrow what you need |
Rates can change. The maximum interest rate can be relatively high |
|
| Pay interest only on what you borrow |
Payments can change |
|
| Flexible access to funds |
Harder to refinance your first mortgage |
|
| Interest may be tax deductible |
|
|
| May be free of closing costs |
|
|
| A good source for an emergency fund, if set up in advance |
|
|
| Can be used for debt consolidation and lower payments |
|
|
| Rates are usually lower than consumer loan or credit card rates |
|
|
|
| Loan Program |
Advantages |
Disadvantages |
|
| Home Equity Fixed Loan |
Fixed payments |
Higher interest rates compared to first mortgage |
|
| Interest may be tax deductible |
Harder to refinance your first mortgage |
|
| Get cash out for any purpose |
Interest is paid on the entire loan amount, compared to an equity line of credit |
|
