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 re-establishing 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 (HELOC)

·      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