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Loan Programs

LOAN TYPE	ADVANTAGES	DISADVANTAGES
FIXED RATE MORTGAGES 15, 20, or 30 Years	Monthly Mortgage Payments and Interest Rate Remain the Same for the Term of the Loan No Increase in Payment or Interest Rate if Loan Rates Rise Ability to Refinance if Interest Rates Decrease	Higher Interest Rate Higher Mortgage Payment Mortgage Rate Remains the Same even if Interest Rates Decrease
ADJUSTABLE RATE MORTGAGES 10/1, 7/1, 5/1, 3/1, 1-YEAR or 6-MONTH ARM	Lower Loan Payment at First for a Short Period of Time May Qualify for Higher Loan Amount Payment and Interest Rate May Decrease if Interest Rates Decrease	Payment and Interest Rate May Increase if Interest Rates Increase May Need to Refinance Before Fixed Payment Period Ends Higher Risk
BALLOON MORTGAGES 5 or 7 Years	Lower Loan Payment for a Short, Fixed Period of Time May Offer the Option to Convert to a Different Loan Program After the Initial Term of the Loan	Interest Rates May Increase Before the End of the Fixed Period Foreclosure Risk if Borrower Cannot Make Balloon Payment, Refinance, or Exercise the Conversion Loan Process
SLOW CREDIT PROGRAMS	•Means to Re-establish Credit Following Bankruptcy or Foreclosure •Mechanism to Consolidate High-interest Credit Card Debt when Used for Debt Consolidation	•Higher Interest Rate •Higher Mortgage Payment •Difficult to Get Long-term Fixed Payments •Loan Terms Not Optimal •Loans May Require High Downpayment or PMI •Loan May Have Pre-Payment Penalties
HOME EQUITY FIXED RATE LOAN	Fixed Payments Interest is Usually Tax Deductible	Higher Interest Rate than First Mortgage Harder to Refinance First Mortgage
HOME EQUITY LINE OF CREDIT	Borrower Has a Credit Limit but Borrows Only the Amount He Needs Borrower Pays Interest Only on the Amount Borrowed Interest is Usually Tax Deductibile Easy Access to Funds (Check or Credit Card)	Higher Interest Rate than First Mortgage Harder to Refinance First Mortgage

Loan Programs are Usually Determined by How Long the Person Plans to Live in the Home

Years Planned to Live in Home	Suggested Loan Program
1-3 Years	3/1, 1-YEAR or 6-MONTH ARM
3-5 Years	5/1 ARM
5-7 Years	7/1 ARM
7-10 Years	10/1 ARM; 30, 20, or 15 YEAR FIXED
10+ Years	30, 20, or 15 YEAR FIXED