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Recommended Program
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1-3
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3/1 ARM, 1 year ARM or 6 month ARM
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3-5
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5/1 ARM
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5-7
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7/1 ARM
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7-10
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10/1 ARM, 30 year fixed or 15 year
fixed
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10+
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30 year fixed or 15 year fixed
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What Are The Basic Loan Types?
There are many loan products designed to meet the borrowers
individual criteria. Most of these 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
- 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 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 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?
Here are a few things to keep in mind when selecting a loan
program.
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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.
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Disadvantage
Pay more interest over the life of the loan, higher
starting interest rate, Lower debt ratio (Larger Income
to qualify) Higher monthly payment.
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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
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Disadvantage
Periodic payment and rate increases, builds equity Slower
payment increases may affect budget.
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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.
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Disadvantage
Loan balance due can change long term financial planning
if you plan to live there over 7 years.
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