LOAN TYPE

DESCRIPTION

WHO IT'S FOR

MAIN ADVANTAGES

MAIN DISADVANTAGES

Fixed Rate Mortgage

A loan with a fixed principal and fixed interest payments for the life of the loan.<?xml:namespace prefix = o />

Best for borrowers who desire a more predictable principal and interest payment throughout the life of the loan.

The fixed principal and interest portion of the mortgage payment stays the same for the life of the loan with no unexpected rises.

The fixed principal and interest portion of the mortgage payment will not go down when interest rates go down. In addition, the portion of the monthly payment that includes taxes and insurance may fluctuate from year to year.

Adjustable Rate Mortgage (ARM)

Typically has a lower interest rate to start, which translates to a lower payment. But the interest rate adjusts over time to either a higher or lower interest rate over time.

Borrowers who are able to budget for a slightly less predictable interest rate and monthly payment.

Take advantage of lower initial interest rates with adjusted lower monthly payments. When interest rates fall, the borrower may not need to refinance as the interest rate on their mortgage falls accordingly.

The principal and interest portion of the mortgage payment may be unpredictable at times; payments go up when interest rates rise.

Fixed/ARM Hybrid

Combines elements of both fixed-rate and adjustable-rate mortgages; typically has a lower interest rate than a traditional fixed rate mortgage. The initial payment period is fixed for a specific term, then the interest rate and principal will adjust over the remaining term of the loan.

Best for borrowers who are less financially established at the start of a loan, but plan to have more financial stability after several years. Also, for those who plan to move or refinance early.

Gives the borrower a chance to establish financial stability before they must manage less predictable payment amounts.

Requires some planning and financial advancement.

Fixed/ARM Hybrid, Interest First (Also referred to as "Interest Only")

Payment of "interest only" reduces your monthly payment compared to a more traditional type mortgage where your payment includes both principal and interest.

Best for borrowers who are less financially established at the start of a loan, but plan to have more financial stability after several years. Also, for those who plan to move or refinance early.

The borrowers interest-only payments may be tax deductible. In addition, a prepayment of principal may reduce the next monthly interest-only payment.

There is no scheduled principal reduction during the interest-only period. In addition, when the loan enters the amortization period (or the scheduled payoff period), there will be higher payments because the loan is paid off in a short period.

Balloon Mortgage

Typically lower interest rate than a traditional fixed rate mortgage.

First time buyers who plan to move after a few years, or someone whose career forces them to move often.

Lower interest rates and simple plan for specific types of borrowers.

After the initial balloon period (3, 5 or 7 years), borrowers may be required to pay off the remaining loan in one lump sum which usually requires refinancing.

Low and No Down Payment Loan

There are a variety of low or no down payment programs available. Some of these loans are best suited for borrowers with excellent credit who want to preserve their assets. Other loans are best for first-time home buyers with income limitations or area restrictions.

Borrowers with excellent credit who want to continue their good credit record, first time buyers, and buyers with income limitations.

Borrowers with little to no savings for up-front costs and down payments can still secure a mortgage.

Low or no down payment loans usually require private mortgage insurance and/or higher interest rates.

LIBOR Interest-Only Alterna Loan

Generally offers an interest rate lower than other adjustable rate loans. Payments are interest-only to start, then principal and interest. "LIBOR" stands for London Interbank Offering Rates.

Beginning borrowers, and borrowers seeking a larger-than-normal loan and expect to be able to increase payments after several years.

Historically, the rate remains below U.S. Treasury-based ARMs. Allows more types of borrowers to qualify.

After a predetermined number of years, monthly payments will increase and interest rates will adjust annually.

My Community Mortgage (MCM)

A special mortgage program for borrowers making less than the average area income (HUD median income), living in specific areas and/or employed in specific fields such as health care, public safety and teaching.

Borrowers within specific income ranges, living in specific areas and working in specific public service fields.

Requires little money down and very little to closing costs and prepaid costs compared to conventional loans.

Eligibility is limited, and types of properties are restricted. Borrower must occupy property as primary residence.

Stated Income and Stated Asset Program

Loan programs that require limited or reduced documentation of the borrower's income and/or assets.

The self employed, or those with complicated financial records.

Traditional income and asset documentation--such as pay stubs and tax returns--is not required.

Good credit history is required. Types of properties are restricted.

FHA Fixed Rate Mortgage

Fixed rate mortgages generally suited for first-time borrowers and borrowers with less than perfect credit. FHA allows 100% of the cash needed to close to come from a gift. "FHA" means Federal Housing Authority.

Borrowers who may need more relaxed credit guidelines and who have limited funds to invest.

Gives hopeful homeowners the chance to secure a mortgage, even if their credit history is imperfect. Out-of-pocket closing costs are lower.

Loan amounts may be limited and vary according to state, county and city. FHA mortgage insurance is required.

FHA Adjustable Rate Mortgage (ARM)

The lower start rate on an adjustable rate mortgage may help a borrower qualify of a larger loan amount than with a fixed rate mortgage. "FHA" means Federal Housing Authority.

Borrowers who may need more relaxed credit guidelines and who have limited funds to invest.

Gives hopeful homeowners the chance to secure a mortgage, even if their credit history is imperfect. Closing costs are generally lower.

Loan amounts may be limited and varied according to state, county and city. FHA mortgage insurance is required.

VA Fixed Rate Loans

Low cost, fixed-rate loans. In most instances, these loans require no down payment.

Veterans and their spouses.

In many instances, no down payment is required and closing costs are covered by the gift funds or seller.

Borrower must live in purchased property; VA loans are not available for investment properties or manufactured housing.

VA Adjustable Rate Loans

Low cost, adjustable-rate loans. In most instances, these loans require no down payment.

Veterans and their spouses.

In many instances, no down payment is required and closing costs are covered by the gift funds or seller.

Borrower must live in purchased property; VA loans are not available for investment properties or manufactured housing.

Refinancing

There are several options for refinancing a mortgage; loans for refinancing are as varied as purchase mortgages.

Homeowners with a certain amount of equity already in their homes.

Allows homeowners to use their home equity to take advantage of low interest rates, borrow money for home improvements, or consolidate debts.

Borrower must close the new loan and in some cases pay some or all of the closing costs.

Second Mortgage or Home Equity Loan

Fixed- or adjustable-rate loans available for purchase or refinance transactions.

For home purchasers who wish to avoid mortgage insurance or homeowners with a substantial amount of equity already in their homes.

Can create lower monthly payments, or provide cash to borrowers through their own home equity. Creates opportunity to consolidate debt or commence home improvement projects.

Increases number or amount of monthly payments.

Jumbo Loans

Fixed- and adjustable-rate mortgages for loan amounts above the conforming limit.

Homebuyers looking for more expensive homes or higher loan balances.

Allows homebuyers to purchase larger, more expensive homes or homes in higher priced communities.

Because Jumbo Loans are considered "higher risk" loans, some lenders charge slightly higher interest rates.