Home
Credit Basics
Debt Basics
Mortgage Basics
Calculators
Mortgage FAQs
What Are The Basic Loan Types? Top
There are many loan products designed to meet the borrowers individual criteria. Most of these 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.
Which Loan Type Is Best For Me? Top

 
Loan Programs
Years you plan to stay in the house Recommended program
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 year fixed or 15 year fixed
10+ 30 year fixed or 15 year fixed

What Should I Look For When Selecting a Loan Program? Top
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.
What should I know before selecting a loan type?
Here are a few things to keep in mind when selecting a loan program.

 
15 Year or 30 Year Fixed Rate
Advantages Disadvantage
Maximum interest deduction for taxes, sometimes easier to qualify, stable predictable payments, high lo an to value, lower down payment, possible secondary financing if needed. Pay more interest over the life of the loan, higher starting interest rate, Lower debt ratio (Larger In come to qualify) Higher monthly payment.


Adjustable Rate Mortgage (ARM)
Advantages Disadvantage
Lowest starting interest rates help qualify for higher loan amounts. If you plan to sell within 2-3 years. If you expect your income to increase. Periodic payment and rate increases, builds equity Slower payment increases may affect budget.


5 - 7 Year Balloon Mortgage
Advantages Disadvantage
Lower starting rate than 30 year fixedgreat for refinancing from a higher rate use when you plan a move in 5-7 years Some are convertible to 30-yr fixed or a treasury ARM, low fees, good rates. Loan Balance Due can Change Long Term Financial Planning If You Plan to Live There Over 7 Years.
Apply Now
Credit Repair
Credit Counseling
Debt Settlement
Mortgage/Refinance
Site Map About Us Privacy Policy Copyright © 2005-2006 Contact Us Affiliates