Loan Programs - Advantages & Disadvantages - State Financial Services, LLC

Overview of Loan Program Types

Loan Program	Advantages	Disadvantages
Fixed Rate Mortgages 30 year fixed 15 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 Higher mortgage payments Rate does not drop if interest rates improve

Loan Program	Advantages	Disadvantages
Adjustable Rate Mortgages (ARM) 10/1 ARM 7/1 ARM 5/1 ARM 3/1 ARM 1 year ARM 6 month ARM 1 month ARM	Lower initial monthly payment Rates and payments may go down if rates improve May qualify for higher loan amounts 30 year term, no balloon payment	More risk Payments may change over time Potential for higher payments if rates increase

Loan Program	Advantages	Disadvantages
Balloon Mortgages 7 year 5 year	Lower initial monthly payment Lower payment for a predetermined period of time Many balloon mortgages offer the option to convert to a new loan after the initial term	Risk of rates being higher at the end of the initial fixed period Risk of foreclosure if you cannot make balloon payment, refinance, or exercise the conversion option Balloon payment requires you to sell or refinance after the term, as opposed to a 7/1 or 5/1 program with a 30 year term

Loan Program	Advantages	Disadvantages
First Time Buyer Programs	Lower or no down payment Easier to qualify Lower rates may be available	May be subject to income and property value limitations Some government subsidized programs may generate a recapture tax if you sell the house too soon Education courses may be required to qualify for these loans Not available in all areas

Loan Program	Advantages	Disadvantages
Stated Income Programs	Don't need to verify income	Higher rates Higher down payment

Loan Program	Advantages	Disadvantages
Interest Only Programs	You have several payment options Lower monthly payments Option to pay the full normal payment Interest only payments for up to ten years	Higher rates Principal loan balance will not decrease during the interest only payment period Payment will be higher for the remaining term

Loan Program	Advantages	Disadvantages
No point, No fee Programs	No out-of-pocket loan costs at closing Closing costs are paid from the lender rebate Less money required to close Refinance without increasing your loan amount	Higher rates Higher payments Some lenders may have a short payoff penalty which is usually charged to the loan broker, but may be passed on to you Some require a prepayment penalty for the first one to five years

Loan Program	Advantages	Disadvantages
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

Loan Program	Advantages	Disadvantages
Home Equity Line of Credit	You only borrow what you need Pay interest only on what you borrow Flexible access to funds Interest may be tax deductible May be free of closing costs A good source for an emergency fund, if set up in advance Can be used for debt consolidation and lower payments Rates are usually lower than consumer loan or credit card rates	Rates can change. The maximum interest rate can be relatively high Payments can change

Loan Program	Advantages	Disadvantages
Home Equity Fixed Loan	Fixed payments Interest may be tax deductible Get cash out for any purpose	Higher interest rates compared to first mortgage Interest is paid on the entire loan amount, compared to an equity line of credit

Loan Program		Advantages		Disadvantages
Reverse Mortgage		You are not required to make any mortgage payments as long as you live in the home There are no income or credit requirements You can use the income for any purpose The payments you receive are tax-free please consult your tax advisor Funds do not effect Social Security or Medicare benefits You can receive the money in one lump sum, as a line of credit, as monthly payments, or as a combination of these You can never owe more than the value of your home Federally Insured mortgage HECM - Home Equity Conversion Mortgage		Closing costs are higher than traditional mortgages, but are ofter rolled into the loan Borrower must be 62 years of age and over May effect ;ow-income assistance programs such as Medicaid The loan must be paid if you move out of the home Your heirs must pay off, refinance or sell the home upon your passing *Life Insurance Proceeds can be used to pay off the mortgage balance Click Here for Additional Information on Reverse Mortgages Reverse Mortgage Calculator