Pre-QualifyTypes of Loans
Ideal Loans for your Lifestyle (Residential)
What's Your Goal?
Choosing the right mortgage for your lifestyle could have substantial impact on your retirement,
your net worth, and your family's future lifestyle. It is critical that you choose a loan program that
fits your needs as well as your future goals. Here are a few choices you may want to consider.
• If you plan to move or refinance within the next 5 to 7 years...
Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
These increasingly popular ARMS -- also called 3/1, 5/1 or 7/1 -- can offer the best of both worlds:
lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable
rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years
and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25
years. It's a good choice for people who expect to move (or refinance) before or shortly after the
adjustment occurs.
• If you plan to stay in your home for at least 7 years...
Thirty-Year Fixed Rate Mortgage
The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never
change. This may be a good choice if you plan to stay in your home for seven years or longer. If you
plan to move within seven years, then adjustable-rate loans are usually cheaper. As a rule of thumb,
it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates
are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may
be a better deal in the long run, because you can lock in the rate for the life of your loan.
Fifteen-Year Fixed Rate Mortgage
This loan is fully amortized over a 15-year period and features constant monthly payments.
It offers all the advantages of the 30-year loan, plus a lower interest rate -- and you'll own
your home twice as fast. The disadvantage is that, with a 15-year loan, you commit to a higher
monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger
payments that will pay off their loan in 15 years. This approach is often a safer than committing
to a higher monthly payment, since the difference in interest rates isn't that great.
• If your income varies throughout the year...
Negative Amortization (Neg. Am) Loan
This is a deferred-interest loan which is very powerful -- and the most misunderstood mortgage program
because of its many options. Basically, the lender allows the borrower to make monthly payments that are
less than the accruing interest. Therefore, if the borrower chooses to make the minimum monthly payment,
the loan balance will increase by the amount of interest not paid on the loan. The power of this loan lies
in the borrower's ability to choose between making the full loan payment, or the minimum payment, or any
amount in between. If a borrower's income varies throughout the year (due to commissions, bonuses, etc.),
the borrower can make a lower payment during the "lean times", and then make higher payments when funds are
readily available.