| TYPE |
DEFINITION |
ADVANTAGES |
DRAWBACKS |
COMMENTS |
| 30 YEAR FIXED RATE |
A long term loan in which principal and interest are
amortized over 30 years; both interest rate and amount of monthly payment
remain unchanged for the life of the loan. |
Considerable tax benefits, especially in
early years.
Payment never rise, regardless of inflation.
|
Slow equity build-up |
The most common mortgage in the U.S., a
particularly good investment when rates are low. |
| 15 YEAR FIXED RATE
|
As above but payback period is 15 years. |
Usually lower interest rate less than 30
year. .Faster equity build-up.
Less interest paid out over life of loan |
Higher monthly payments.
Less tax deductible interest.
|
An excellent option for middle aged and
older buyers |
| ARM (Adjustable Rate Mortgage)
|
A mortgage whose rate changes over time
according to terms specified by the lender, usually according to short
term Treasury Bill rates. |
Low initial interest rate, sometimes below
market.
Payments may decrease over time.
|
Payments may increase over time.
Risky if rates rise significantly
|
Good option for buyers whose income will
rise and/or fall when rates are expected to drop. |
| FHA/VA MORTGAGE LOANS |
Government-insured or guaranteed mortgages
that can make pur- chase more affordable than conventional loans |
Little or no down pay ment required.
Marginally better rate than conventional 30- year
mortgages. |
Lower limits on the maximum that can be borrowed.
VA requires current or past military record. |
Good option for first time buyers with
little to invest in a down payment. |
| GPM (Graduated Payment Mortgage)
|
A fixed rate mortgage offering low initial
monthly payments that increase by a pre- determined amount, then level off
after about five years. |
More affordable payments for first few
years.
Unlike ARM's, buyer knows up-front how much payments
will rise in future. |
Slower equity build- up.
Buyer's income may not rise in proportion to payments.
|
Another good choice for buyers who expect
income to rise substantially after home is purchased. |
| BALLOON MORTGAGE |
A short term (3-5 years) loan, usually at a
fixed rate, paid back in equal monthly payments and a final
"balloon" payment for the remaining balance. |
Lower monthly payments
Full tax benefits |
Little or no equity build-up; monthly payments are often
for interest only.
Balloon payment usually requires refinancing or selling
the house. |
Designed for buyers who plan ion moving with
a few years and/ or are confident in the short term appreciation of
property. |
