Mortgage Products: About Different Loan Programs
What Are The Basic Loan Types?
The past several years have seen an explosion in loan products
designed to meet almost every borrowers individual criteria. These
many mortgage 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: Some of
the balloon programs may be converted to an adjustable rate or a
fixed rate after 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 mortgage. 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?
TRADITIONAL FIFTEEN TO THIRTY YEAR FIXED-RATE
LOANS
| Maximum Interest Deduction for
Taxes, sometimes easier to qualify, stable predictable payments,
high loan to value, lower down payment, possible secondary financing
if needed |
Pay More Interest Over Life of Loan, higher
starting interest rate, Lower debt ratio (Larger Income to qualify)
Higher monthly payment |
3 - 5 - 7 FIXED SWITCHING TO ADJUSTABLE
MORTGAGE
| No Rate Change in First Years
Lower Starting Fixed Rates If You Plan to Sell Within 3 - 7
Years Allows Budget Planning Can Give You Time to Repair Credit |
Rate Increases after Fixed Term Possible
6% Lifetime Rate Increase Builds Equity Slower Loses Advantage
After First Fixed Period Fixed rates change to adjustable rate
|
ADJUSTABLE MORTGAGE (ARM)
| 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 |
Periodic Payment and Rate Increases Possible
6% Lifetime Rate Increase Builds Equity Slower Payment Increases
May Affect Budget |
5 - 7 YEAR BALLOON MORTGAGE
| Lower Starting Rate than 30
Year Fixed Great 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 |
Loan Balance Due can Change Long Term Financial
Planning If You Plan to Live There Over 7 Years |
|
