Buying - Types of Loans

Fixed Rate Mortgages – 30 year / 15 year

Advantages:

• 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.

Disadvantages:

• Higher interest rates.
• Higher mortgages payments.
• Rate does not drop if interest rates improve.

Adjustable Rate Mortgages – 10/1 ARM – 7/1 ARM – 3/1 ARM – 1Year ARM

Advantages:

• Lower initial monthly payment.
• Lower payment over a shorter period of time.
• Rates and payments my go down if rates improve.
• May qualify for higher loan amounts.

Disadvantages:

• More risk.
• Payments may change over time.
• Potential for high payments if rates go up.

Balloon Mortgages – 7 year / 5 year

Advantages:

• 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.

Disadvantages:

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

Advantages:

• Lower down payments.
• Easier to qualify.
• Sometimes you may get lower rates.

Disadvantages:

• 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

Advantages:

• Don’t need to verify income.
• Faster approval.

Disadvantages:

• Higher rates.
• Higher down payment.

No Point, No Fee Programs

Advantages:

• No closing costs.
• Less money required to close.

Disadvantages:

• Higher rates.
• Higher payments.

Imperfect Credit Programs

Advantages:

• 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.

Disadvantages:

• Higher rates.
• Terms may not be as favorable
• Harder to get long term fixed loans. Loans may have prepayment penalties.