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
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
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
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?
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.
Loan is usually made at a lower interest rate.
Equity is built faster because early payments pay more principal.