 Fixed Rated Mortgages
|
| Advantages |
Disadvantages |
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.
|
Higher interest rate
Higher mortgage payments Rate does not drop if interest rates improve |
Adjustable Rate Mortgage
|
|
Advantages
|
Disadvantages
|
|
Lower initial monthly payment Lower payment over a
shorter period of 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 |
Short-Term Fixed Rate Mortgages / Hybrids
|
|
Advantages
|
Disadvantages
|
Lower initial monthly payment than a fixed-rate mortgage.
Protected against interest rate increases for the fixed-period
May qualify for higher loan amounts
You have time to improve your financial position (i.e., salary
increases) or accumulate additional assets before the interest rate
adjusts at the end of the fixed period
|
Potential
for higher payments after fixed-rate-period
Prepayment penalties can
apply with certain loan programs
At end of the fixed period, you may
refinance to fixed-rate mortgage or keep it as ARM |
Interest Only Loans
|
| Advantages |
Disadvantages
|
Lower monthly payment
Qualify for a larger loan
Payment flexibility, add to monthly payment at
anytime to pay down principal |
No reducing principal
during interest-only period
Subject
to LTV limits and slightly higher rates
At
end of the fixed period, you must refinance, pay a lump sum, or start
paying on the principal
|
Balloon Mortgages
|
|
Advantages
|
Disadvantages
|
Lower
initial monthly payment
Lower payment over a shorter period of time
Many balloon mortgages offer the option to convert to a new loan after
the initial term. Disadvantages
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
|
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 |
Low Down Payment Mortgages
|
|
Advantages
|
Disadvantages
|
Lower down payment
Easier to qualify
Sometimes you may get lower rate
|
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.
|
Buydown Mortgages
|
|
Advantages
|
Disadvantages
|
| Lower payments
|
High up-front cost to
get lower interest rate or upfront financed over the life of the loan
Sales
price of home may increase beyond appraised value
|
FHA Mortgages
|
|
Advantages
|
Disadvantages
|
Low down payment
Down payment may be borrowed from a relative
Loan rates are often lower
Easier to qualify
More generous credit qualifying criteria
Assumable
Easy to refinance
Specialty products such as Renovation Loans and Reverse Mortgages |
Not open to everyone
Cap on the amount of loan
Processing may take longer than for
conventional loans
Appraisal guidelines may be
stricter than for conventional loans
Sometimes (but not always) closing
costs are higher
Sometimes (but not always) interest
rates are higher
Fewer mortgage options
|
VA Loans
|
|
Advantages
|
Disadvantages
|
Designed only for U.S.
military veterans
A down payment may not be required
Easier to qualify
|
Not open to everyone
Processing may take longer than for
conventional loans |
Reverse Mortgages
|
|
Advantages
|
Disadvantages
|
Increases the monthly income of retired or
elderly borrowers
Designed to help seniors use the equity in their home without selling
or moving
No monthly payment
|
Loan must be repaid if
the borrower sells, moves, or dies
Reduces
the value of equity available to heirs
|
Home Equity Line of Credit
|
Advantages |
Disadvantages
|
You only borrow what you
need
Pay interest only on what you borrow
Flexible access to funds Interest may be tax deductible Disadvantages
|
Rates
can change. The maximum interest rate is normally high.
Payments can change
Harder to refinance your first
mortgage
|
Home Equity Fixed Loan
|
|
Advantages
|
Disadvantages
|
Fixed payments
Interest may be tax deductible |
Higher interest rates than on 1st
mortgages
Harder to refinance your first
mortgage
|
Hard Money (Private Investor Loans)
|
Advantages |
Disadvantages
|
Faster approval Less "red
tape"
Easy qualification guidelines |
Higher
interest rate
Higher
loan fee
Higher
down payment
|
CA. Dept. of Real Estate, License No. 01358720, NMLS No. 503753.