The chart below is the first step in figuring out some of the programs that may fit you.
| Some Common Goals |
Recommended program |
| CashFlow |
3/1 ARM, 1 year ARM or 6 month ARM, Interest Only |
| Lowest Rate |
3/1 ARM, 5/1 ARM, Option ARM |
| Security |
7/1 ARM, All Fixed Rate loans |
| No Money Down |
3/1 ARM, 5/1 ARM, Gov’t FHA with gift funds |
| I just want what my Parents Had |
30 year fixed or 15 year fixed |
| Loan Programs |
Advantages |
Disadvantages |
| Fixed Rate Mortgages |
30-, 20- and
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 |
|
Provides the least opportunity to increase your wealth accumulation by incorporating the VELOCITY OF MONEY |
|
| The Velocity of money is a concept. The premise is that every thing you buy is 100% financed. Are you better off putting money down on your home or are you better off financing 100% and keeping your 20%. Could you earn a return greater than the rate you are paying. That is the theory of “the velocity of Money”. |
| Adjustable Rate Mortgages |
10/1 ARM
7/1 ARM
3/1 ARM
1 year ARM
6 month ARM
1 month ARM
|
| • |
Lower initial monthly payment |
| • |
Lower payment over a shorter period of time |
| • |
Rates and payments may go down if rates improve |
| • |
May qualify for higher loan amounts |
| • |
Enables maximum ability to build wealth by reinvesting excess cashflow |
|
| • |
More risk |
| • |
Payments may change over time |
| • |
Potential for high payments if rates go up |
|
| The newest addition to the ARM program scenarios is that of an INTEREST ONLY OPTION. You can do this with most of the above listed programs and can even do this on a 30 yr fixed rate. It allows you to pay a significantly reduced payment giving you much more cashflow. This allows you to utilize the velocity of Money. The VELOCITY OF MONEY concept shows that if you take a 5 yr ARM and invest the cashflow savings, five years from now you will have more money invested than what you would have saved in principle reduction. Depending upon the rate of return on your investment, you could have enough money to pay the mortgage off in as little as 10 years (at 10% return, 12 years at 8% return). Did you know that in the history of the New York Stock Exchange, the rate of return has averaged 8%. |
| Extendable/Balloon Mortgages |
7 year
5 year
|
| • |
Lower initial monthly payment |
| • |
Lower payment over a shorter period of time |
| • |
Many balloon mortgages offer the option to convert to a fixed loan after the initial term. |
|
| • |
Risk of rates being higher at the end of the initial fixed period |
|
| First Time Buyer Programs |
|
| • |
Lower down payment |
| • |
Easier to qualify |
| • |
Sometimes you may get lower rate |
|
| • |
May be subject to income and property value limitations |
| • |
Some programs which have government subsidies may have a recapture tax if you sell the house too early. |
|
| Stated Income Programs |
|
| • |
Don't need to verify income |
|
| • |
Higher rates |
| • |
Higher down payment |
|
| No Point, No Fee Programs |
|
| • |
No closing costs |
| • |
Less money required to close |
|
| • |
Higher rates |
| • |
Higher payments |
|
| Alternative or Non-traditional Lending |
|
| • |
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 |
|
| 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 |
|
| • |
Rates can change. The maximum interest rate is normally high. |
| • |
Payments can change |
| • |
Harder to refinance your first mortgage |
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