|
Loan Programs |
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
5 year |
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 Buyer Programs: |
| |
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. |
|
Interest Only Programs: |
| |
Qualify for
more house
Initial payments are lower |
No equity is
built
After initial interest only term,
the mortgage either balloons or turns into an arm
and principle is then added to the monthly payment |
|
No point, No fee Programs: |
| |
No closing
costs
Less money
required to close |
Higher rates
Higher payments
|
|
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 |
|
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 |
