|
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 |
What Are The Basic Loan Types?
There are many loan products designed to meet the borrowers individual criteria. Most of these products fall under a few basic loan types.
- 15-Year and 30-Year Fixed Rate
Payment and rate stay the same from start to finish
- 5 and 7 Year Balloons
Lower start rate. Some of the balloon programs may be converted to an adjustable rate or a fixed rate af
ter the 5 or 7 years, with very low fee and attractive rate
- Adjustable Rate Mortgage (ARM)
Lowest start rate Adjusts either every 6 months or every 12 months depending on program and grade and is
based on the economy 6% ceiling for prime and 7% ceiling for sub-prime.
- 5/1 and 7/1 Fixed Rate
Rate is fixed for the first 5 or 7 years, then shifts to an adjustable rate mortgage (ARM).
- 2/28 and 3/27 ARM
An ARM program that is fixed for the first 2 or 3 years, then shifts into a 6 month adjustable rate mor
tgage. It is a sub-prime program giving you a rate lower than the sub-prime 30-year fixed, and if you have had credit
problems, it allows a window of time for credit rebuilding and seasoning. You will then want to refinance this loan.
What Should I Look For?
Are You Moving in the First Few Years?
You may want to consider a balloon mortgage. Some balloon loans allow you to convert to a longer term if you find the 5 or 7 years was not enough time. Conversions are easy and reasonable. When you consider this loan, ask if the program is convertible.
Do You Need the Lowest Possible Rate to Qualify?
To qualify for the house you want, an adjustable rate or a 7-year balloon may be the answer.
Do You Want a Fixed Predictable Loan?
If you want a fixed predictable loan for a long time, the 15-year or 30-year fixed is probably the best, especially when you have good credit.
Which Program Is Best For Me?
Here are a few things to keep in mind when selecting a loan program.
|
15 Year or 30 Year Fixed Rate |
|
AdvantagesMaximum interest deduction for taxes, sometimes easier to qualify, stable predictable payments, high lo
an to value, lower down payment, possible secondary financing if needed.
|
Disadvantage
Pay more interest over the life of the loan, higher starting interest rate, Lower debt ratio (Larger In
come to qualify) Higher monthly payment.
|
|
Adjustable Rate Mortgage (ARM) |
|
Advantages Lowest starting interest rates help qualify for higher loan amounts. If you plan to sell within 2-3 years. If you expect your income to increase
|
Disadvantage
Periodic payment and rate increases, builds equity Slower payment increases may affect budget.
|
|
5 - 7 YEAR BALLOON MORTGAGE |
|
AdvantagesLower starting rate than 30 year fixedgreat for refinancing from a higher rate use when you plan a move in 5-7 years Some are convertible to 30-yr fixed or a treasury ARM, low fees, good rates.
|
Disadvantage
Loan Balance Due can Change Long Term Financial Planning If You Plan to Live There Over 7 Years.
|
|
