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Choosing a Loan Program

There isn’t a simple answer to this question. The right type of mortgage for you may depends on many different factors:

• Your current financial picture
• How you expect your finances to change
• How long you intend to keep your house
• How comfortable you are knowing your mortgage payment may increase

For example, a 15-year fixed rate mortgage can save you thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but your payments could increase when the interest rate changes.

The best way to find the “right” answer is to discuss your finances with a mortgage professional.

Fixed Rate Mortgage

A fixed rate mortgage is the most common type of mortgage and provides you with a stable interest rate and payment that will not change over the life of the loan. Consider a fixed rate loan when:

• Interest rates are low
• You plan to stay in the house for an extended period of time
• You want stable monthly payments
• You’re on a fixed income

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage typically begins with an interest rate that is lower than a fixed rate mortgage and the rate is adjusted periodically based on a pre-selected index. The adjustment is determined by the index associated with the type of ARM. As the index fluctuates so does the interest rate. Consider an ARM loan when:

• Fixed interest rates are high
• You anticipate an increase in income
• You only plan to stay in your home for a short while
• Construction/Permanent Loans

Balloon Mortgage

Balloon Mortgages typically offer interest rates lower than standard 30-year fixed rate mortgages. Balloon Mortgages have an initial short-term financing period, usually seven years, after which you may have the option to refinance the mortgage for the remaining term or pay off the outstanding balance. If you anticipate selling or refinancing your home in a few years, a balloon mortgage may be right for you.

Buydown

The most common buydown is the 2-1 buydown that requires you or the property seller to pay additional points at closing in exchange for a lower interest rate for the first two years. Typically, the rate drops two percent the first year, one percent the second year, then goes back up to the full interest rate. For example if you have a buydown fixed-rate loan at 7 percent, additional points are paid up-front. The first year you are only charged 5 percent, the second year you would be charged 6 percent, and the third and subsequent years you would be charged 7 percent. Consider a buydown when:

• Fixed-rate interest rates are low, but you cannot qualify for a loan
• The seller is paying the closing costs
• You expect your income to significantly increase in the next year or two

Construction/Permanent

If you’re ready to build a home, a construction/permanent loan can save you time and money. It’s a construction loan and a permanent mortgage rolled into one, customized to fit your individual situation. You save on closing costs because both portions of the loan package are closed at once. You avoid going through the closing process a second time, and you can relax knowing that you have a permanent loan in place upon completion of your new home.