What types of loans are available and what are the advantages of each?

Fixed Rate Mortgages: Payments remain the same for the life of the loan

Types

• 15-year
• 30-year

Advantages

• Predictable
• Housing cost remains unaffected by interest rate changes and inflation

Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits

Types

• Balloon Mortgage- Offers very low rates for an initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)
• Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan
• ARMS linked to a specific index or margin

Advantages

• Generally offer lower initial interest rates
• Monthly payments can be lower
• May allow borrower to qualify for a larger loan amount