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