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.