Which loan is right for me?
Often the answer to this question is based around the number of years you plan to stay in your home. Each type of loan has specific terms that affect the amount of the payment, the interest rate, and the length of the pay back. However, this is not the only factor. It is important to weigh many factors such as income projections, economic trends, and personal debt management preferences. Weigh the pros and cons of each loan type. The important thing is to make an educated decision.
Fixed Rate
Programs
- 30 Year Fixed
- 15 Year Fixed
Pros
- 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
Cons
- Higher interest rate
- Higher mortgage payments
- Rate does not drop if interest rates improve
Adjustable Rate
Programs
- 10/1 ARM
- 7/1 ARM
- 3/1 ARM
- 1 year ARM
- 6 month ARM
- 1 month ARM
Pros
- Lower initial monthly payment
- Lower payment over a shorter period time
- Rates and payments may go down if rates improve
- May qualify for higher loan amounts
Cons
- More risk
- Payments may change over time
- Potential for high payments if rates go up
Balloon Payment
Pros
- Lower initial monthly payment
- Lower payment over a shorter period of time
- Many balloon mortgages offer the option to convert a new loan after the initial term
Cons
- 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
Stated Income Programs
Pros
- Don't need to verify income
- Faster approval
Cons
- Higher rates
- Higher payments
No Point, No Fee Programs
Pros
- No closing costs
- Less money required to close
Cons
- Higher rates
- Higher payments
Imperfect Credit Programs
Pros
- 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
Cons
- 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
Pros
- You only borrow what you need
- Pay interest only on what you borrow
- Flexible access to funds
- Interest may be tax deductible
Cons
- Rates can change, max rates are normally high
- Payments can change
- Harder to refinance your first mortgage
Home Equity Fixed Loan
Pros
- Fixed payments
- Interest may be tax deductible
Cons
- Higher interest rates than on 1st mortgages
- Harder to refinance 1st mortgage
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