What's Your Goal?
Choosing the right Loan for your lifestyle could have a 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 lifestyle needs as well
as you 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. A 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.
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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, adjustable rate loans are usually
cheaper. As a rule of thumb, fixed rate loans may also be
harder to qualify for than 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 is often a safer approach than committing to a higher
monthly payment, since the interest rate difference isn't that great.
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If your income varies throughout
the year...
Negative Amortization (Neg. Am) Loan
This is a deferred interest loan that is very powerful
and the most misunderstood 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 is in the borrower's ability to choose either making the
full loan payment, the minimum payment, or any amount in between. If a
borrower's income varies throughout the year (commissions, bonuses,
etc.), the borrower can make the lesser payment during the "lean
times", and make the higher payment when funds are readily
available.
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