Which mortgage is right for me?
 
Years you plan to stay in the house Recommended program
1-3 3/1 ARM or 1 year ARM
3-5 5/1 ARM
5-7 7/1 ARM
7-10 10/1 ARM, 30 year fixed or 15 year fixed
10+ 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
Adjustable Rate Mortgages:
10/1 ARM
7/1 ARM
3/1 ARM
1 year ARM
• Lower initial monthly payment

• Lower payment over a shorter period of time

• Rates and payments may go down if rates improve

• May qualify for higher loan amounts
• More risk

• Payments may change over time

• Potential for high payments if rates go up
Balloon Mortgages:
7 Year Balloon
5 Year Balloon
• Lower initial monthly payment

• Lower payment over a shorter 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 or if you cannot refinance or if you cannot exercise the conversion option
First-Time Homebuyers:
• Lower down payment

• Easier to qualify

• Sometimes you may get lower rate
• May be subject to income and property value limitations

• Some programs which have government subsidies may have a recapture tax if you sell the house too early.
Stated Income Programs:
• Don’t need to verify income

• Faster approval
• Higher rates

• HIgher down payment
No Points, No Fee Programs:
• No closing costs

• Less money required to close
• Higher rate

• Higher payment
Imperfect Credit Porgrams:
• 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
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
• Rates can change. The maximum interest rate is normally high.

• Payments can change

• Harder to refinance your first mortgage
Home Equity Fixed Loan:
• Fixed payments

• Interest may be tax deductible
• Higher interest rates than on 1st mortgages

• Harder to refinance your first mortgage

 
 
 
 
 
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