There isn't a single or simple answer to this question. The right type of mortgage for you 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 with your mortgage payment changing
For example, a 15-year fixed rate mortgage can save you many 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 get higher when the interest rate changes.
The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage professional.
Years you plan to stay in the home
Recommended program
1-3 years
3/1 ARM, 1 year ARM or 6 month ARM
3-5 years
5/1 ARM
5-7 years
7/1 ARM
7-10 years
10/1 ARM, 30 year fixed or 15 year fixed
10+ years
30 year fixed or 15 year fixed
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
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 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
Loan Program
Advantages
Disadvantages
Stated Income Programs
Don't need to verify income
Faster approval
Good for borrowers who may not qualify with a full income documentation program
Higher rates
Higher down payment
Loan Program
Advantages
Disadvantages
Interest Only Programs
You have several payment options
Lower monthly payments
Qualify for a higher loan amount
Qualify at the interest only payment
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
Harder to refinance your first mortgage
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
Harder to refinance your first mortgage
Interest is paid on the entire loan amount, compared to an equity line of credit
In addition to our standard loan programs, you may benefit by obtaining one of our many special programs:
Purchase your home with no down payment.
Piggyback loans: 80-10-10 or 80-15-5. Avoid PMI payments.
Debt consolidation programs.
Home Improvement loans.
You may qualify even if you've been turned down before!
Rancho Funding - 611 K St Suite #B-204 - San Diego, CA 92101 Fax: 1-877-814-7718 Toll Free Phone: 1-877-664-6368
Loan approval is not guaranteed and is subject to verification of specific information that requested at the time of application. Specific rates may not be available for all borrowers. Rates subject to change. California Dept. of Real Estate, Broker #01421018 “Home Ownership Accelerator” and the yellow flying house logo are trademarks of CMG Financial Services, Inc Home Ownership Accelerator® is a proprietary financial product innovated and funded by CMG Mortgage Services, Inc., San Ramon, CA, for assignment and servicing by GMAC Bank®, Member FDIC, Horsham, PA. This is not a bi-weekly program usually refered to as the Mortgage Accelerator or Mortgage Excellerator.
