Years you plan to stay in the home

Programs to consider

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 or 15 year fixed

Fixed Rate Mortgages

Advantages

Disadvantages

·   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 (ARM)

Advantages

Disadvantages

·   10/1 ARM

·   7/1 ARM

·   5/1 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

Balloon Mortgages

Advantages

Disadvantages

·   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

First Time

Buyer Programs

Advantages

Disadvantages

·   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

Stated Income Programs

Advantages

Disadvantages

·   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

Interest Only Programs

Advantages

Disadvantages

·   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

No Point, No fee Programs

Advantages

Disadvantages

·   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

Imperfect Credit Programs

Advantages

Disadvantages

·   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

Advantages

Disadvantages

·   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

Home Equity
Fixed Loan

Advantages

Disadvantages

·   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