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Loan Products

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 Lower start rate. 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.

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Interest Only Loan In the beginning of the interest only mortgage loan, more of the interest is being paid, but as time goes by, more and more principal is paid off. As the name, "Interest Only",
implies, there is a period of time (at the beginning 5 - 10 years usually) of the mortgage loan payments in which only the interest on the loan amount is being paid off.

In addition, Interest only mortgage loans are the perfect alternative to conventional mortgages for those who will live in their homes for less than 10 years. It really depends upon your needs and goals, especially in the next five years.

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 Interest Only or 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, Interest Only 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
Advantages Maximum Interest Deduction for Taxes, sometimes easier to qualify, stable predictable payments, high loan to value, lower down payment, possible secondary financing if needed	Disadvantage 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
Advantages 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	Disadvantage 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
INTEREST ONLY MORTGAGE
Advantages Maximum Interest Deduction for Taxes, sometimes easier to qualify for. Stable predictable payments, high loan to value, lower down payment. Lowest Monthly Payment Help Qualify For Higher Loan Amounts Gives You More Flexibility for Payments Gives You Extra Capital To Invest	Disadvantage Builds Equity Slower but your equity still grows. I.E. market value of homes in your area.
ADJUSTABLE MORTGAGE (ARM)
Advantages 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	Disadvantage Periodic Payment and Rate Increases Possible 6% Lifetime Rate Increase Builds Equity Slower Payment Increases May Affect Budget
5 - 7 YEAR BALLOON MORTGAGE
Advantages 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	Disadvantage Loan Balance Due can Change Long Term Financial Planning If You Plan to Live There Over 7 Years

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