Program
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Pros
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Cons
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Fixed Rate Mortgages
- 30 Year fixed
- 15 Year fixed
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- 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
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- 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
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- 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
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- More risk
- Payments may change over time
- Potential for high payments if rates go up
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Balloon Mortgages
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- 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
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- 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
|
First Time Buyers |
- 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
|
Stated Income Programs |
- Don't need to verify income
- Faster approval
|
- Higher rates
- Higher payments
|
No point, No fee Programs |
- No closing costs
- Less money required to close
|
- Higher rates
- Higher payments
|
Imperfect Credit Programs |
- 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 EquityLine of Credit |
- You only borrow what you need
- Pay interest only on what you borrow
- Flexible access to funds
- Interest may be tax deductible
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- Rates can change, max rates are normally high
- Payments can change
- Harder to refinance your first mortgage
|
Home Equity Fixed Loan |
- Fixed payments
- Interest may be tax deductible
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- Higher interest rates than on 1st mortgages
- Harder to refinance 1st mortgage
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