Loan options that work for you

Fixed-rate mortgages

• Lower monthly payment
• Most affordable
• More cash/savings because payment is lower; easier to bear if the homeowner has repairs to make or comes upon hard times; extra cash allows homeowner to make other investments since cash isn’t tied up in the mortgage

• Longer term
• Pay more interest
• Costs more than shorter term mortgages over the life of the loan

• Shorter term, own your home in half the time (allows you to own your home before your children start college or before you reach retirement)
• Often the total interest paid over the life of the loan is lower, less than half the total interest of a 30 yr

• Bigger monthly payment
• Qualification may be difficult because the income requirement is higher

• Loan is paid off much more quickly
• Interest savings is significant
• Often automatically deducted from your checking account

• Must be able to budget and make the half-mortgage payment every two weeks

• When interest rates go down, payment goes down
• Initial interest rate can be as much as 2 to 3 percent lower than a comparable fixed rate mortgage
• Homeownership is more affordable
• Qualifying is easier
• Lower initial interest rate compared to fixed-rate mortgages, which can make homeownership more affordable and make qualifying for a mortgage easier. And if interest rates decline, your mortgage payments decline as well.

• When interest rates go up, payments go up
• The potential for higher monthly payments if interest rates increase
• Requires more budgeting discipline

Convertible Mortgages

• Advantages of an ARM with the ability to convert to a fixed-rate mortgage

• If you don’t convert, it’s a regular ARM
• If interest rates are at a higher level, when its time to convert, you may not want to go with it

• Allows you to get a bigger loan and more house
• For home buyers who receive the bulk of their income in bonuses
• Good for people who expect to increase their income quickly
• Also good for people who plan to move before principal comes due and for those who reasonably expect their incomes to rise strongly over time

• Must budget wisely and make lump sum payments, steering clear of using that money for other purposes  except to strong investments
• At end of the fixed period, you must refinance, pay a lump sum, or start paying on the principal
• If house doesn’t appreciate, you may owe money when selling
• When paying only the interest, the principal does not decrease and you do not build equity unless the home appreciates in value

• Designed for those who have trouble verifying all of their income such as self-employed borrowers, commissioned professionals, or service industry professionals (e.g.; bartenders, waitresses, hair stylists)
• Lender does not require proof of income and assets
• No ratios (debt to income, housing to income)

• Higher interest rate because of higher risk
• Bigger down payment required 
• Higher credit standards

• A good choice for those who don't expect to own their home past the maturity date when the balloon payment is due
• Short-term loan with equal payments
• Payments are usually lower than conventional fixed loans
• Good choice if home is expected to appreciate
• Lower interest rate then long term loan

• At the end of a few years, you must sell your house or refinance because all remaining principal is due
• If you need to refinance, interest rates may be much higher than when you got the balloon loan
• May end up owing remaining principal plus additional settlement costs if the house doesn't appreciate

• 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

• 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

Special mortgages

• Low down payment
• Downpayment 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

• Cap on the amount of loan
• Processing may take longer than for conventional loans
• Appraisal guidelines may be stricter than for conventional loans
• Fewer mortgage options

• 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