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What Are The
Basic Loan Types?
The past several years have seen an explosion in
loan products designed to meet almost every
borrowers individual criteria. These many mortgage
products fall under a few basic loan types.
15-Year and 30-Year
Fixed Rate
Payment and rate stay the same from start to finish
5 and 7 Year Balloons
Lower start rate. Some of the balloon programs may
be converted to an adjustable rate or a fixed rate
after the 5 or 7 years, with very low fee and
attractive rate.
Adjustable Rate Mortgage (ARM)
Lowest start rate Adjusts either every 6 months or
every 12 months depending on program and grade and
is based on the economy 6% ceiling for prime and 7%
ceiling for sub-prime.
5/1 and 7/1 Fixed Rate
Rate is fixed for the first 5 or 7 years, then
shifts to an adjustable rate mortgage (ARM).
2/28 and 3/27 ARM
An ARM program that is fixed for the first 2 or 3
years, then shifts into a 6 month adjustable rate
mortgage. It is a sub-prime program giving you a
rate lower than the sub-prime 30-year fixed, and if
you have had credit problems, it allows a window of
time for credit rebuilding and seasoning. You will
then want to refinance this loan.
What
Should I Look For?
Are You Moving in
the First Few Years?
You may want to consider a balloon mortgage. Some
balloon loans allow you to convert to a longer term
if you find the 5 or 7 years was not enough time.
Conversions are easy and reasonable. When you
consider this loan, ask if the program is
convertible.
Do You Need the Lowest Possible Rate
to Qualify?
To qualify for the
house you want, an adjustable rate or a 7-year
balloon may be the answer.
Do You Want a Fixed Predictable Loan?
If you want a fixed
predictable loan for a long time, the 15-year or
30-year fixed is probably the best, especially when
you have good credit.
Which Program Is Best For Me? |
