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Number of years you plan on staying in the house

Recommended mortgage program

1-3

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

3-5

5/1 ARM, or 5/25 reset, 5/6 interest only

5-7

7/1 ARM, or 7/23 reset

7-10

10/1 ARM, 30 year fixed or 15 year fixed

10+

30 year fixed or 15 year fixed

 

Types Of Mortgages

PROS

CONS

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 might go down if rates improve
  • Might qualify for higher loan amounts
  • More risk
  • Payments might 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

  • No down payment
  • Lower monthly payment
  • Up to 6% seller paid closing costs.
  • Great way to get into a home and start building equity.
  • Might have slightly higher interest rate with no down payment.
  • Many zero down programs have a fixed rate for only the first 2-3 years.



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 might be able to reduce your monthly debt payment
  • Higher rates
  • Terms might not be as favorable
  • Harder to get long term fixed loans
  • Loans might 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 might 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 might be tax deductible
  • Higher interest rates than on 1st mortgages
  • Harder to refinance your first mortgage