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Home Loan Selection Chart & Mortgage Guidance

Which home loan or mortgage is right for me?

Years you plan to stay in the home
Recommended program
  • 1-3 years
  • 3-5 years
  • 5-7 years
  • 7-10 years
  • 10+ years
  • 3/1 ARM, 1 year ARM or 6 month ARM
  • 5/1 ARM, 5 year balloon
  • 7/1 ARM, 7 year balloon
  • 10/1 ARM, 30 year fixed or 15 year fixed
  • 30 year fixed or 15 year fixed

What are the advantages and disadvantages of each type of home loan or mortgage?

Home Loan Program
Advantages
Disadvantages

Fixed Rate Home Loans

  • 30 year fixed home loan
  • 20 year fixed home loan
  • 15 year fixed home loan
  • 10 year fixed home loan
  • Fixed Mortgage Payments
  • Interest rate is fixed
  • Protected from increase in rates
  • Can refinance if rates drop
  • Possibly higher interest rate
  • Higher mortgage payments
  • Rates don't drop if rates improve

Adjustable Rate Mortgage Loans

  • 10/1 ARM
  • 7/1 ARM
  • 5/1 ARM
  • 3/1 ARM
  • 1 year ARM
  • 6 month ARM
  • 1 month ARM
  • Lower initial mortgage payment
  • Rates and payment may drop if rates improve
  • May qualify for higher loan amounts
  • No balloon payment
  • 30 year term
  • More risk
  • Rates may increase
  • Payments may increase
  • Payments change over time

Balloon Mortgage Loans

  • 7 year
  • 5 year
  • Lower initial monthly payment
  • Lower payment for a predetermined period of time
  • Many balloon mortgages offer the option to convert to a new home loan after the initial term
  • Risk of rates being higher at the end of the initial period
  • Risk of foreclosure if you cannot make balloon payment, convert, or refinance after the fixed balloon term

First Time Buyer Loan Programs

 
  • Lower down payment
  • Easier to qualify
  • Lower rates may be available
  • May be subject to income and property value limitations
  • Some government subsidized programs may generate a recapture tax if you sell the house too soon
  • Education courses may be required to qualify

Stated Income Loan Programs

 
  • Don't need to verify income
  • Faster approval
  • Good for borrowers who may not qualify with a full income documentation system
  • Higher rates
  • Higher down payment 
  • Very few of these home loan programs exist today

Interest Only Loan Programs

 
  • You have several payment options
  • Lower monthly payments
  • Qualify for a higher loan amount
  • Qualify at the interest only payment
  • Option to pay the full normal paymentInterest only payments for up to ten years
  • Higher interest rate
  • Principal loan balance will not decrease during the interest only payment period
  • Payment will be higher for the remaining term

No Point No Fee Loan Programs

 
  • No out-of-pocket loan costs at closing
  • Closing costs are paid from the lender rebate
  • Less money required to close
  • Refinance without increasing your loan amount
  • Higher interest rate
  • Higher monthly payments
  • Some lenders may have a short payoff penalty which is usually charged to the loan broker, but may be passed on to you
  • Some require a prepayment penalty for the first one to five years

Imperfect Credit Programs

 
  • 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 interest rate
  • Terms may not be as favorable
  • Harder to get long-term fixed home loans
  • Loans may have prepayment penalties

Home Equity Line Of Credit

 
  • You only borrow what you need
  • You only pay interest on what you borrow
  • Flexible access to funds
  • Interest may be tax deductible
  • Low or no closing costs
  • Good source for an emergency fund
  • May be good for debt consolidation
  • Rates are typically lower than non-secured debt rates
  • Rates can change. The maximum interest rate can be relatively high
  • Harder to refinance your first mortgage
  • Payments can change

Home Equity Fixed Loan

 
  • Fixed payments
  • Interest may be tax deductible
  • Get cash out for any purpose
  • Higher interest rates compared to first mortgage
  • Harder to refinance your first mortgage
  • Interest is paid on the entire loan amount, compared to an equity line of credit