Home equity line of credit
Positive side
⇒ You only borrow what you need
⇒ Pay interest only on what you borrow
⇒ Flexible access to funds
⇒ Interest may be tax deductible
⇒ May be free of closing costs
⇒ A good source for an emergency fund, if set up in advance
⇒ Can be used for debt consolidation and lower payments
⇒ Rates are usually lower than consumaer loan or credit card rates
Negative side
⇒ Rates can change. The maximum interest rate can be relatively high
⇒ Payments can change
⇒ Harder to refinance your first mortgage
Home equity fixed mortgage
Positive side
⇒ Fixed payments
⇒ Interest may be tax deductible
⇒ Get cash out for any purpose
Negative side
⇒ 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
Balloon mortgages
⇒ 7 years
⇒ 5 years
Positive side
⇒ Lower initial monthly payment
⇒ Lower payment for a predetermined period of time
⇒ Many balloon mortgages offer the option to convert to a new loan after the initial term
Negative side
⇒ Risk of rates being higher at the end of the initial fixed period
⇒ Risk of foreclosure if you cannot make balloon payment, refinance, or exercise the conversion option
⇒ Ballon payment requires you to sell or refinance after the term, as opposed to a 7/1 ot 5/1 program with a 30 year term
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Years you plan to stay in the property Program
1-3 years - 3/1 ARM, 1 year ARM or 6 month ARM
3-5 years - 5/1 ARM
5-7 years - 7/1 ARM
7-10 years - 10/1 ARM, 30 year fixed or 15 year fixed
10+ years - 30 year fixed or 15 year fixed
Fixed Rate Mortgages
⇒ 30 year fixed
⇒ 15 year fixed
Positive side
⇒ Monthly payment are fixed over the life of the loan
⇒ Interest rate does not change
⇒ Prtotected if rates go up
⇒ Can refinance if rates go down
Negative side
⇒ Higher interest rate
⇒ Higher mortgage payments
⇒ Rate does not drop if interest rates improve
Interest Only Mortgages
Positive side
⇒ Several payment options
⇒ Lower monthly payments
⇒ Qualify for higher loan amount
⇒ Qualify at the interest only payment
⇒ Option to pay the full principal and the interest payment
⇒ Interest only payments for up to ten years
Negative side
⇒ Higher rates
⇒ Prinvipal loan balance will not decrease during the interest only payment period
⇒ Payment will be higher for the remaining term
First time buyer mortgages
Positive side
⇒ Lower down payment
⇒ Easier to qualify
⇒ Lower rates may be available
Negative side
⇒ 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 for these loans
Stated income mortgage
Positive side
⇒ Don’t need to verify income
⇒ Faster approval
⇒ Good for borrowers who may not qualify with a full income documentation program
Negative side
⇒ Higher rates
⇒ Higher down payment
Imperfect credit mortgage
Positive side
⇒ 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
Negative side
⇒ Higher rates
⇒ Terms may not be as favorable
⇒ Harder to get long-term fixed loans
⇒ Loans may have prepayment penalties
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