Years you plan to stay in the home

Recommended program

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 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

Loan Program

Advantages

Disadvantages

Adjustable Rate Mortgages (ARMs)

¨10/1 ARM

¨7/1 ARM

¨5/1 ARM

¨3/1 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

Loan Program

Advantages

Disadvantages

Balloon Mortgages

¨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

Loan Program

Advantages

Disadvantages

First Time Buyer Programs

¨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

Loan Program

Advantages

Disadvantages

Interest Only Programs

¨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

Loan Program

Advantages

Disadvantages

100% Financing

Programs

¨Less money required to close

¨No down payment

¨Available for vacation homes or investment properties

¨Higher rates

¨Higher payments

¨Some require a prepayment penalty for the first one to five years

¨May be subject to paying private mortgage insurance (PMI)

Loan Program

Advantages

Disadvantages

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

Loan Program

Advantages

Disadvantages

Home Equity Lines of Credit

¨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

Loan Program

Advantages

Disadvantages

Home Equity Loans

¨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