Advantages and Disadvantages of Mortgage 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

 

Loan Programs	Advantages	Disadvantages
Fixed Rate Mortgages
40 year fixed 30 year fixed 20 year fixed 15 year fixed 10 year fixed	Monthly payments are fixed over the life of the loan. Interest rate does not change Protected if rates go up Can refinance if rates go down	Higher interest rate than ARM program*  Higher mortgage payments Rate does not drop if interest rates improve
Adjustable Rate Mortgages
10/1 ARM – 10y. fixed period 7/1 ARM – 7y. fixed period 5/1 ARM – 5y. fixed period 3/1 ARM – 3y. fixed period 1 year ARM 6 month ARM 1 month ARM	Lower initial monthly payment than fixed rate programs*  Lower payment over a shorter period of time Rates and payments may go down if rates improve May qualify for higher loan amounts	More risk Payments may change over time Potential for high payments if rates go up
Interest Only (I/O) Option Programs
30, 40 year fixed programs 3/1, 5/1, 7/1, 10/1 ARMs	Lower initial monthly payment during the I/O period  More flexibility Two payment options are available up to 15 years: fully amortized (principal and interest) or interest-only.	Payments will be  higher at the end of the initial I/O period Higher interest rate than the same program without I/O option
High Loan-to-Value (LTV) Programs
	Lower down payment LTV can be up to 97%	May be subject to income and property value limitations May be subject to PMI (private mortgage insurance) Higher rates Higher payments
Stated Income Programs
Not available on today’s market	Don’t need to verify income	Higher rates Higher payments  Higher down payment      Subject to Loan-to-Value limitations
No point, No fee Programs
	Hidden closing costs Less money required to close	Higher rates Higher payments
Imperfect Credit Programs
	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	Higher rates Terms may not be as favorable Harder to get long term fixed loans Loans may have prepayment penalties
Home Equity Line of Credit
1st position up to 75% LTV2nd position up to 80% CLTV	You only borrow what you need Pay interest only on what you borrow Flexible access to funds Interest may be tax deductible	Rates can change. The maximum interest rate is normally high. Payments can change Harder to refinance your first mortgage
Home Equity Fixed Loan
2nd position up to 80% CLTV	Fixed payments Interest may be tax deductible	Higher interest rates than on 1st mortgages Harder to refinance your first mortgage

Fixed Rate vs. Adjustable Rate

Mortgage Programs:

-Fixed Rate Mortgage Programs (40, 30, 20, 15, 10 years) – The interest rate and your mortgage monthly payments remain fixed for the period of the loan. The shorter the term of a loan, the payment is higher because the principal amount of debt is amortized over the shorter period of time. The payments on fixed rate fully amortizing loans are calculated so that at the end of the term the mortgage loan is paid in full. During the early amortization period, a large percentage of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied to principal. If you are going to keep your property more than 5-7 years, you should consider getting fixed rate program. You will be protected if rates go up, and can refinance your mortgage if rates go down. Usually, fixed programs have an interest rate higher than adjustable rate programs. The higher rate, the higher monthly payment. If you are planning to stay in your property less than 5-7 years, you should consider adjustable programs. But on December, 2008 fixed rates are lower than adjustable rates. We can not explain this phenomenon.
–Adjustable Rate Mortgage Programs (ARM) – Frequencies of payment/rate adjustments dictate how often the rate can change. How the interest rate can change is a function of the index added to the margin. The index of an ARM is the basis of future interest rate changes.  The Index is regularly published in a source accessible to the public. The margin is set by the lender and is the amount above the index that the interest rate can adjust at the time of adjustment. The result of the index plus margin formula is the new interest rate. Rates and payments may go down if rates improve, but it is more risky because it is potential for high payments if rates go up. This program can be good for a short period of time. The better choice will be combined mortgage programs.
–Combined Mortgage Programs (3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM) – A combination of fixed and ARM loans with 30-year amortization period. With such type of loans homeowners can enjoy from three to ten years of fixed payments before the initial interest rate change. At the end of the fixed period, the interest rate will adjust annually. The advantage of these loans is that the interest rate is usually lower than for a 30-year fixed (the lender is not locked in for as long so their risk is lower and they can charge less) but you still get the advantage of a fixed rate for a period of time.
-Fixed (30 years) or Combined Programs with Interest Only Option (I/O) – A loan that doesn’t require a set payment each month up to 15 years. You get two payment options to choose from each month: your lender sends you a monthly statement offering an interest-only payment (1) and 30-year amortized payment – principal and interest (2). If you are going to pay off your mortgage during 10 years making large prepayment of principal, your actual rate can be decreased from 6-7% to 2-3% by using this program. For our customers we make special plan with math calculations how to save money with I/O 30-year amortized program instead of 10-year amortized fixed program. 
–First Position Home Equity Line of Credit (HELOC) – When you don’t have the 1st mortgage, you can obtain Equity Line up to 75% of the property value and up to $350K limit amount. Current HELOC rate is lower than the 1st mortgage rates and it is based on the prime rate that is 3.25% on today’s market. HELOC rate is always adjustable. With HELOC you can enjoy interest-only payments.

Availability of specific programs, Loan-To-Value ratios, Interest Rate depend on middle FICO credit score, type of documentation provided, type of occupancy, type of financed property and type of transaction.

Property Types:
SFR, 2-4 Family Houses
Condominiums, PUDs, Cooperatives

Credit:
From Excellent to Problematic
FICO Credit Scores from 620+

Documentation Type:
Full Income Full Assets (full docs)
Stated Income Full Assets
Stated Income Stated Assets

Occupancy:
Owner Occupied Properties
Second Homes
Investment Properties

Transactions:
Purchase
Rate & Term Refinance
Cash Out Refinance

Mortgage Structure:
First Mortgage Only
First & Second Mortgage
First Mortgage & HELOC
Second Mortgage Only
HELOC Only