Fixed Rate Mortgages

• 30 year fixed

• 15 year fixed

• 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

• Higher interest rate
• Higher mortgage payments
• Rate does not drop if interest rates improve

Adjustable Rate Mortgages
(or "ARM")

• 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
• Rates and payments may go down if rates improve
• May qualify for higher loan amounts
• 30 year term, no balloon payment

• More risk
• Payments may change over time
• Potential for higher payments if rates increase

• 7 year

• 5 year

• Lower initial monthly payment
• Lower payment for a predetermined 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 cannot make balloon payment, refinance, or exercise the conversion option

• Balloon payment requires you to sell or refinance after the term, as opposed to a 7/1 or 5/1 program with a 30 year term

• Lower down payment
• Easier to qualify
• Lower rates may be available

• May be subject to income and property value limitations
• Some government subsidized programs may generate a recapture tax if you sell the house too soon
• Education courses may be required to qualify for these loans

• Don't need to verify income
• Faster approval
• Good for borrowers who may not qualify with a full income documentation program

• Higher rates
• Higher down payment

• You have several payment options
• Lower monthly payments
• Qualify for a higher loan amount
• Qualify at the interest only payment
• Option to pay the full normal payment
• Interest only payments for up to ten years

• Higher rates
• Principal loan balance will not decrease during the interest only payment period
• Payment will be higher for the remaining term

• No out-of-pocket loan costs at closing
• Closing costs are paid from the lender rebate
• Less money required to close
• Refinance without increasing your loan amount

• Higher rates
• Higher payments
• Some lenders may have a short payoff penalty which is usually charged to the loan broker, but may be passed on to you
• Some require a prepayment penalty for the first one to five years

• 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

• 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
( or "HELOC")

• You only borrow what you need
• Pay interest only on what you borrow
• Flexible access to funds
• Interest may be tax deductible
• May be free of closing costs
• A good source for an emergency fund, if set up in advance
• Can be used for debt consolidation and lower payments
• Rates are usually lower than consumer loan or credit card rates

• Rates can change. The maximum interest rate can be relatively high
• Payments can change
• Harder to refinance your first mortgage

• Fixed payments
• Interest may be tax deductible
• Get cash out for any purpose

• Higher interest rates compared to first mortgage
• Harder to refinance your first mortgage
• Interest is paid on the entire loan amount, compared to an equity line of credit