The following table presents a list of the most common types
of mortgages, their characteristics, and who is most likely to benefit
from the particular type of mortgage. Please note that not every type
of mortgage is presented, and that these are guidelines; individual buyers
need to consult with a financial planner to determine the best type of
mortgage for there particular circumstances.
| Type
of Mortgage |
Mortgage Characteristics |
Best choice
for those who: |
FIXED
RATE
MORTGAGE
(30,10,15,10 years) |
- Interest
rate and
monthly payment
remain the same for the entire term of the loan
|
- plan
to live in property more than 10 years
- like
total payment stability
|
10/1
YEAR
ADJUSTABLE RATE
MORTGAGE |
- Interest
rate and
monthly payment remain
the same for 10 years
- Starting
the 11th year, interest rate adjusted every year, so payment is
subject to change every year for remainder of loan
|
- plan
to live in property more than 10 years
- like
initial payment stability, can accept later changes
OR
- plan
to move within 10 years
- want
loan to remain in force in case plans change
|
7/23
(2-Step)
or
'30 due in 7'
MORTGAGE |
- Interest
rate and monthly payment remain the same for 7 years
- Conversion
option: On the 8th year, interest rate adjusted to reflect prevailing
interest rates, resulting payment will remain the same for remainder
of loan
|
- plan
to live in property more than 10 years
- can
tolerate one payment adjustment
OR
- plan
to move within 7 years
- want
to remain in force in case plans change
|
7/1
YEAR
ADJUSTABLE RATE
MORTGAGE |
- Interest
rate and monthly payment remain the same for 7 years
- Starting
the 8th year, interest rate adjusted every year, so payment is
subject to change every year for remainder of the loan
|
- plan
to live in property more than 7 years
- like
initial payment stability, can accept later changes
OR
- plan
to move within 7 years
- want
loan to remain in force in case plans change
|
7
YEAR
BALLOON
MORTGAGE |
- Interest
rate and monthly payment remain the same for 7 years
- At
the end of 7 years, loan is due in full. Borrower must refinance
into new loan at prevailing interest rates
|
- plan
to live in property more than 7 years
- are
willing to refinance at prevailing market rates
OR
- plan
to move within 7 years
- like
payment stability
|
5/25
(2-Step)
or
'30 due in 5'
MORTGAGE |
- Interest
rate and monthly payment remain the same for 5 years
- Conversion
option: On the 6th year, interest rate adjusted to reflect prevailing
interest rates, resulting payment will remain the same for remainder
of loan
|
- plan
to live in property more than 5 years
- can
tolerate one payment adjustment
OR
- plan
to move within 5 years
- want
loan to remain in force in case of plans change
|
5/5
& 5/1 YEAR
ADJUSTABLE RATE
MORTGAGES> |
- Interest
rate and monthly payment remain the same for 5 years
- Starting
the 6th year, interest rate adjusted every 5 years (for 5/5 ARM)
and every year (for 5/1 ARM)
|
- plan
to live in property more than 5 years
- like
initial payment stability, can accept later changes
OR
- plan
to move within 5 years
- want
loan to remain in force in case plans change
|
5
YEAR
BALLOON
MORTGAGE |
- Interest
rate and monthly payment remain the same for 5 years
- At
the end of 5 years, loan is due in full. Borrower must refinance
into new loan at prevailing interest rates
|
- plan
to live in property more than 5 years
- are
willing to refinance at prevailing market rates
OR
- plan
to move within 5 years
- like
payment stability
|
3/3
& 3/1 YEAR
ADJUSTABLE RATE
MORTGAGES |
- Interest
rate and monthly payment remain the same for 3 years
- Starting
4th year, interest rate adjusted every 3 years (for 3/3 ARM) and
every year (for 3/1 ARM)
|
- plan
to live in property more than 3 years
- like
initial payment stability, can accept later changes
OR
- plan
to move within 3 years
- want
loan to remain in force in case plans change
|
1
YEAR
ADJUSTABLE RATE
MORTGAGES |
- Interest
rate adjusted every year, so monthly payment is subject to change
every year for entire 30 year loan term
|
- want
to take advantage of lowest rate possible
- are
willing to accept yearly payment changes
OR
- cannot
qualify at higher rate programs
|
