1-3

3/1 ARM, 1 year ARM or 6 month ARM

3-5

5/1 ARM

5-7

7/1 ARM

7-10

10/1 ARM, 30 yr fixed or 15 yr fixed

10+

30 year fixed or 15 year fixed

Loan Programs

Advantages

Disadvantages

· Lower initial monthly payment
· Lower payment over a shorter period of time
· Rates and payments may go down if rates improve
· May qualify for higher loan amounts

· More risk
· Payments may change over time
· Potential for high payments if rates go up

· Lower initial monthly payment
· Lower payment over a shorter period of time
· Many balloon mortgages offer the option to convert to a new loan after the initial term.

· Risk of rates being higher at the end of the initial fixed period
· Risk of foreclosure if you cannot make balloon payment or if you cannot refinance or if you cannot exercise the conversion option

· Lower down payment
· Easier to qualify
· Sometimes you may get lower rate

· May be subject to income and property value limitations
· Some programs which have government subsidies may have a recapture tax if you sell the house too early.

· Don't need to verify income
· Faster approval

· Higher rates
· Higher down payment

· No closing costs
· Less money required to close

· Higher rates
· Higher payments

· Potential for reestablishing credit if you pay your mortgage on time.
· When used for debt consolidation, you may be able to reduce your monthly debt payment

· Higher rates
· Terms may not be as favorable
· Harder to get long term fixed loans
· Loans may have prepayment penalties

· You only borrow what you need
· Pay interest only on what you borrow
· Flexible access to funds
· Interest may be tax deductible

· Rates can change. The maximum interest rate is normally high.
· Payments can change
· Harder to refinance your first mortgage

· Fixed payments
· Interest may be tax deductible

· Higher interest rates than on 1st mortgages
· Harder to refinance your first mortgage