Years you plan to stay in home

 Best program

3/1 ARM, 1 year ARM or 6 month ARM
5/1 ARM
7/1 ARM
10/1 ARM, 30 year fixed or 15 year fixed
30 year fixed or 15 year fixed

 Program

 Pros

 Cons

Fixed Rate Mortgages

• 30 Year fixed
• 15 Year fixed

• Monthl 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

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

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

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

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 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 or if you cannot refinance or if you cannot exercise the conversion option
  

• Lower Down payment
• Easier to qualify
• Sometimes you may get lower rates
  

• 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
  

• Don't need to verify income
• Faster approval
  

• Higher rates
• Higher payments
  

• No closing costs
• Less money required to close
  

• Higher rates
• Higher payments
  

• 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
  

• 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, max rates are normally high
• Payments can change
• Herder to refinance your first mortgage
  

• Fixed payments
• Interest may be tax deductible
  

• Higher interest rates than on 1st mortgages
• Herder to refinance 1st mortgage