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

• 30 year fixed

• 15 year fixed

• Monthly payments are fixed over the life of the loan

• Interest rate does not change

• Protected if rates go up

• Can refinance if rates go down

• Higher interest rate

• Higher mortgage payments

• Rate does not drop if interest rates improve

Loan Program

Advantages

Disadvantages

Adjustable Rate Mortgages (ARM)

• 10/1 ARM

• 7/1 ARM

• 5/1 ARM

• 3/1 ARM

• 1 year ARM

• 6 month ARM

• 1 month ARM

• Lower initial monthly payment

• Rates and payments may go down if rates improve

• May qualify for higher loan amounts

• 30 year term, no balloon payment

• More risk

• Payments may change over time

• Potential for higher payments if rates increase

Loan Program

Advantages

Disadvantages

Balloon Mortgages

• 7 year

• 5 year

• Lower initial monthly payment

• Lower payment for a predetermined period of time

• Many balloon mortgages offer the option to convert to a new loan after the initial term

• Risk of rates being higher at the end of the initial fixed period

• Risk of foreclosure if you cannot make balloon payment, refinance, or exercise the conversion option

• 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

• Easier to qualify

• Lower rates may be available

• May be subject to income and property value limitations

• Some government subsidized programs may generate a recapture tax if you sell the house too soon

• Education courses may be required to qualify for these loans

Loan Program

Advantages

Disadvantages

Stated Income Programs

• Don't need to verify income

• Faster approval

• Good for borrowers who may not qualify with a full income documentation program

• Higher rates

• Higher down payment
  
   

Loan Program

Advantages

Disadvantages

Interest Only Programs

• You have several payment options

• Lower monthly payments

• Qualify for a higher loan amount

• Qualify at the interest only payment

• Option to pay the full normal payment

• Interest only payments for up to ten years

• Higher rates

• Principal loan balance will not decrease during the interest only payment period

• Payment will be higher for the remaining term

Loan Program

Advantages

Disadvantages

No point, No fee Programs

• No out-of-pocket loan costs at closing

• Closing costs are paid from the lender rebate

• Less money required to close

• Refinance without increasing your loan amount

• Higher rates

• Higher payments

• Some lenders may have a short payoff penalty which is usually charged to the loan broker, but may be passed on to you

• Some require a prepayment penalty for the first one to five years

Loan Program

Advantages

Disadvantages

Imperfect Credit Programs

• Potential for reestablishing credit if you pay your mortgage on time

• When used for debt consolidation, you may be able to reduce your monthly debt payment

• Higher rates

• Terms may not be as favorable

• Harder to get long-term fixed loans

• Loans may have prepayment penalties

Loan Program

Advantages

Disadvantages

Home Equity Line of Credit

• You only borrow what you need

• Pay interest only on what you borrow

• Flexible access to funds

• 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

• Rates can change. The maximum interest rate can be relatively high

• Payments can change

• Harder to refinance your first mortgage

Loan Program

Advantages

Disadvantages

Home Equity Fixed Loan

• Fixed payments

• Interest may be tax deductible

• Get cash out for any purpose

• Higher interest rates compared to first mortgage

• Harder to refinance your first mortgage

• Interest is paid on the entire loan amount, compared to an equity line of credit