Years you plan to stay in the house

Recommended program

1-3

3/1 ARM, 1 year ARM or 6 month 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
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
6 month ARM
1 month 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.

Stated Income Programs

Don't need to verify income

Faster approval

Higher rates

Higher down 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 1 st mortgages

Harder to refinance your first mortgage