Loan Programs

Years you plan to stay in the house Recommended Program
1-3 3/1 ARM, 1 year ARM of 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

Loan program advantages and disadvantages

loan Programs 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 changes
  • 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
5/1 ARM
3/1 ARM
1 year ARM
6 month ARM
1 month ARM
  • Lower initial monthly payment
  • Lower payment over the fixed period of time
  • Rates and payments may go down if rates improve
  • May qualify for higher loan amounts
  • More risk
  • Payments may 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 can neither make balloon payment nor refinance
FIXED RATE MORTGAGES
30 year fixed
15 year fixed
  • Monthly payments are fixed over the life of the loan
  • Interest rate does not changes
  • 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
HOME EQUITY LINE OF CREDIT
("HELOC")
  • 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
  • Rates may adjust daily,usually pegged to the prime rate plus some margin
  • Payments can change
STATED INCOME AND NO DOCUMENT PROGRAMS
  • Income is not verified – no supporting documents required
  • Faster approval
  • Higher rates
  • Higher down payment
NO COST PROGRAMS
  • No lender, legal, or title costs
  • Less money required to close
  • Higher rates
  • Higher payments
BAD OR LOW CREDIT PROGRAMS
  • Potential for reestablishing credit
  • 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
OTHER PROGRAMS
Interest Only ("IO") loans; pay interest only for a fixed period of time (no principal payments)
Purchase a house with $0 down; even borrow up to 104% of purchase price
Piggyback loans 80-10-10 or 80-15-5; no PMI payments even with 5% or 10% down
Debt consolidation programs
Home Improvement Loans and Construction Loans
Cash-flow ARMS (low start rate and fixed annual payment increases)