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Advantages |
Disadvantages |
When to consider |
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Fixed Rate Mortgage
Interest rate and payment remains constant throughout the entire life of the loan.
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- Predictable payments
- Easier to budget
- Protection from rising interest rates
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- Interest rates are higher than for loans where rates can fluctuate
- Doesn't benefit you when interest rate fall |
- You prefer not to take risks
- You plan to stay in your home for more than 5 to 7 years |
Adjustable Rate Mortgage (ARM)
The initial interest rate will periodically change based upon changes of a published index. Payments can rise or fall.
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- Interest rates are lower than fixed-rate mortgages at the beginning of the loan
- If interest rates falls, your payments goes down |
- Rise and fall of interest rate
- Future payments are unpredictable |
- Interest rate are high
- You plan to keep your home for a short period
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Balloon Mortgage
Starts out as a fixed-rate mortgage but has a shorter mortgage term, usually 5 - 7 years, and requires borrower to pay off the balance at the end of the term. |
- Interest rate and monthly payments are lower
- Predictable payments for term of the loan |
- Can require financing at rates which are available at the end of the loan term, if one chooses to keep the home.
- Unpredictable situation at end of loan period. |
- Plan to keep your home for a short period |
Government Loans
Through various lenders, the Federal Housing Administration (FHA) and the Veterans Administration offers opportunities for many Americans |
- Allows for a lower down payment than a traditional bank
- Insured by the government
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- Limited properties designated as approved for government loans
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- If you are a veteran
- Buying a lowered priced home with a small down payment |
Convertible Arm
Starts out as an ARM but provides an option to lock in a fixed rate without refinancing. The option is available after a set time. |
- Interest rate is lower than fixed rate mortgage
- Locked in, predictable payments after conversion |
- Takes a risk on the rise and fall of interest rates for at least the initial period of time |
- Interest rates are high |