Which mortgage is right for you?

Buying your first home can seem intimidating, especially when faced with many different loan types. Don't worry. Here is a quick review of various mortgage options and some helpful hints as to when each loan may be appropriate. Use this list to help you narrow down the choices to what is best.

Program Loan characteristics Appropriate for
borrowers who:
Fixed rate mortgage (30,20,15,10 years)
  • Interest rate & 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 & 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 & 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 & 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 ballon mortgage
  • Interest rate & 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 & 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 & 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 & 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 & 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
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