Choosing the right mortgage for your individual situation and lifestyle could have substantial impact on your life (your retirement, your net worth and your family's future lifestyle). It's critical that you choose a loan program that not only fits your current needs, but also takes your future goals into consideration as well. Some important issues to consider are:
- Length of time that you plan to own the home.
- Your income situation – W-2 Employee, Self Employed, Fixed Income, Etc.
- Your employment situation – Present and Future.
- Availability and/or use of current assets.
- The condition of your credit.
- Your existing monthly credit debt and cash needs.
- Your future cash needs (retirement, college tuition…etc)
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FIXED RATE MORTGAGES
A Fixed Rate Mortgage is one in which the interest rate does not change and your remains the same for the entire life of the loan.
Advantages: Consistent principal and interest payments make this type of loan very stable option. The rate will not change, so you do not need to worry about market fluctuations. This type of loan is typically a good choice if you are likely to stay in the home for a long time.
Disadvantages: This type of loan is usually priced higher than an Adjustable Rate Mortgage, so it may cost you more. Keep in mind that the average time that a person stays in a particular mortgage (before moving or refinancing) is only seven years. If rates in the current market are high, you are likely to get a better price with an adjustable rate.
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ADJUSTABLE RATE MORTGAGES (ARM)
An Adjustable Rate Mortgage is one in which the interest rate changes over the life of the loan based on the terms specified in advance.
Advantages: ARMs are usually priced lower than Fixed Rate Mortgages, typically giving you more borrowing power. If interest rates go down during the term of you loan, you’ll enjoy lower monthly payments. Usually an ARM is the best choice for homeowners who plan to relocate or refinance within 2-7 years.
Disadvantages: Your monthly payment can increase if interest rates go up. Keep in mind that ARMs are best for homeowners who aren’t planning to stay with a mortgage for a long period of time. Depending on overall market conditions, the saving of an ARM may not outweigh the stability of a Fixed Rate Mortgage.
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FHA MORTGAGES (Federal Housing Administration 203(b))
FHA Mortgages are loans that are insured by the government and intended to assist borrowers in the low to moderately priced housing markets.
Advantages: Qualification for an FHA Mortgage is not based on your credit score, so this type of loan is a great option for borrowers with less than perfect credit. Refinances are allowed up to 95% of the value of your home. Purchases are allowed up to 97% of the value – and gifted funds can be used for down payment. Great rates are available on 30-year, fixed rate loans with no pre-payment penalty.
Disadvantages: There are statutory limits on the loan amounts. These limits vary depending on the county where the property is located.
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VA MORTGAGES (Federal Housing Administration 203(b))
VA Mortgages are loans in which the government guarantees up to $417.000.00 of the total loan and are available to eligible active duty and veterans of the U.S Armed Forces.
Advantages: Interest rates are very competitive, even if you have had some credit problems in the past. Down payments for purchases are not required. Mortgage insurance is not required regardless of the loan to value.
Disadvantages: Only available to active duty and veterans of the U.S. Armed forces. Some additional paperwork and procedures are required. The Department of Veterans Affairs require certain funding fees and closing cost, of which a portion must be paid upfront.
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Flex-Pay
Our unique Flex Pay Mortgage offers the advantage of 3 different payment options each month, with the security of a fixed interest rate for 1, 3, 5 or 7 years. Although not for everyone, this type of mortgage provides you with a great amount of control over you monthly expenses. You can choose, on a monthly basis, between making a Full payment, an Interest Only payment or a Minimum payment (typically about ½ of the Full payment)- based on your cash flow needs.
Advantages:Unlike "Option ARMS", the interest rate is fixed for a period of time regardless of the payment option you select. It gives you the ability to make smaller payments during times that cash flow may be reduced and make full or larger payments when cash is available. Ideal for people with cyclical income fluctuations. Available with either 30 or 40-year amortizations for even more flexibility.
Disadvantages: This type of loan is usually priced higher than a traditional Mortgage, so it may cost you more. Only the Full payment option affects your principal – the Interest Only payment does not pay down the principal balance and the Minimum payment adds to the principal balance. Also, the interest rate will start to adjust after the fixed interest term.
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Interest Only Mortgage
Available as an option to many types of loan programs, an Interest Only mortgage allows you to pay less per month. The payment does not include any amount for principal balance reduction, so you truly only pay the interest portion of the payment.
Advantages: This type of loan may help you qualify for a larger loan amount. Allows you to pay the principal balance down when you can. May be suitable for a situation where home value will increase rapidly and you plan to be in the loan for a short period of time..
Disadvantages: If you make only the require payments without any other additions, your principal balance does not go down. The term for making the interest only payment is typically limited.
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OTHER LOAN PROGRAMS
There are many different types of loan programs geared to help borrowers in all types of situations. Since the availability and guidelines for these “niche” loan programs change often, the best way to have your unique situation evaluated is contact one of our seasoned mortgage bankers. We can help you understand your options and decide which loan is your ideal loan.
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