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Mortgage Alternatives


WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH


Fixed Rate Mortgages: Payments remain the same for the the life of the loan



Types



15-year

30-year



Advantages



Predictable

Housing cost remains unaffected by interest rate changes and inflation.



Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits



Types




Balloon Mortgage- Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is clue or refinanced (though not automatically)


Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan
ARMS linked to a specific index or margin



Advantages



Generally offer lower initial interest rates

Monthly payments can be lower

May allow borrower to qualify for a larger loan amount


WHEN DO ARMS MAKE SENSE


An ARM may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.

WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS



30-Year:



In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions.
As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.



15-year:



Loan is usually made at a lower interest rate.

Equity is built faster because early payments pay more principal.





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