Loan Programs | Advantages | Disadvantages |
Fixed Rate Mortgages: 30 year fixed 15 year fixed | § Interest rate does not change § Secure against economic changes. § Monthly payments are fixed (amortized) over life of loan § Can refinance if need be, usually without penalty | § Higher interest rate throughout term § Higher payments § Rates will never drop if interest rates improve § Statistically, consumers do not keep loans over 48 months |
Adjustable Rate Mortgages: 2/28 arm, 3/27 arm, 1 month arm, 6 month arm, 1 year arm, 3/1 arm, 5/1 arm, 7/1 arm, 10/1 arm | § Gives consumer opportunity to have low payment and financial situation on track § Lower initial monthly payment § Rates and payments could go down if rates improve § Statistically more effective for most consumers § Have option to refinance into fixed term § May qualify for higher loan amounts | § Can be more risky § Payments can change over time (after fixed period) § Some can carry pre-payment penalties |
Balloon Mortgages: 5 year, 7 year, 10 year, 15 year, 20 year | § Lower initial monthly payment § Generally, loan can be converted to a new loan § May help in getting approval | § Risk of foreclosure if balloon payment cannot be made at the end of fixed period § Rates could be higher when balloon term is do |
First Time Buyer Programs | § Lower down payment § Easier to qualify § Sometimes you will qualify for lower rates | § Can be subject to property and income restrictions § Loans could carry possible subsidies |
Stated income /Limited documentation programs | § Usually do not need to verify income § Bank statements can be used to qualify § Fast approval § Simple processing | § Higher rates § Limited Loan to Value (LTV) § More fees |
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No point, No fee programs | § No closing costs § No out of pocket costs § Less money needed to close | § Higher rates § Higher payments |
Sub prime/Non-conforming programs | § Excellent for re-establishing credit § Can be a short term loan (arm loans) § Can utilize debt consolidation methods § Monthly payment reduction § Higher debt to income ratios § Higher Loan to Value approvals § More cash out flexibility § Quick approvals | § Long term fixed loans are not as beneficial § Rates can be higher due to risk § Fees could be higher § Loans could have pre-payment penalties |
Home Equity Line of Credit (HELOC) | § Only pay interest on what you owe § Borrower only what you need § Easy access to funds § Interest is usually tax deductible § Lower fees to close loan § Can get interest only payments | § Rates are usually adjustable based on the prime rate § Payments can change § Considered a 2nd mortgage, which could make it more difficult to refinance 1st mortgage |
