A simple comparison of different mortgage loans/programs

Advantage

Disadvantage

Fixed Rate Mortgages

• 30-year
• 20-year
• 15-year

• Monthly payments are fixed over the life of the loan
• Interest rate is guaranteed for the life of the loan
• Ability to refinance if rates go down
• Protected if rates go up

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

Adjustable Rate Mortgages

• 3/1 ARM
• 5/1 ARM
• 7/1 ARM
• 10/1 ARM
• 1 year ARM
• 6 month ARM
• 1 month ARM

• Lower initial monthly payment
• Lower payment over a shorter period of time
• Rates and payments may go down if rates improve
• May qualify for higher loan amount

• Payments may change over time
• Potential for high payments if rates go up
• More risk

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 high at the end of the initial fixed term
• Risk of foreclosure if cannot make balloon payment or if cannot refinance or if cannot exercise the conversion option

Home Equity Line of Credit

• You only borrow what you need
• Pay interest only on what you borrow
• Flexible access to funds
• Interest may be tax deductible

• Rates can change
• The maximum interest rate is normally high
• Payments can change
• Harder to refinance first mortgage

Home Equity Fixed Loan

• Fixed payments
• Interest may be tax deductible

• Higher interest rate on first mortgage
• Harder to refinance first mortgage

Federal Housing Administration Loans (FHA)

• Low rates for those who can't come up with the down payment or have less than perfect credit
• Great for first-time homebuyers
• The loan is assumable

• If you can afford 5 percent down, you might find better rates with conventional loans

First Time Buyer Programs

• Easier to qualify
• Sometimes you may get lower rate

• May be subject to income and property value limitations
• Some programs which have government subsidies may have a recapture tax if you sell the house too early

Stated Income Programs

• No need to verify income
• Higher rates
• Faster approval

• Higher down payment

No point, No fee Programs

• Less money required to close
• Potential for re-establishing 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
• Higher payments
• Loans may have prepayment penalties
• Terms may not be as favorable