AmLoan Center - Home Loan Pros and Cons


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Home - Pros and Cons

WHICH PROGRAM IS BEST FOR YOU?

How will you know what program is right for you? To put it simply, the one you’re comfortable with! There are MANY loans to choose from, and all of them are good loans – but only for the right person in the right situation. Our interview process guides us to the right loan for YOUR situation. Below is an example of one of the important variables affecting your choice.

Years you plan to live in the house	*Suggested Program(s)*
1-3	3/1 ARM, 1 year ARM or 6 month ARM
3-5	Options above, or 5/1 ARM
5-7	5/1 ARM, 7/1 ARM, or a shorter-term fixed rate program
7-10	7/1 ARM, 10/1 ARM, or a shorter-term fixed rate program
10+	10/1 ARM, or longer-term fixed rate program (15, 30, etc.)

Length of time in a home is one of the most critical factors because it helps determine how to save the most money without risking an unnecessary increase in rate. For example, the average homeowner relocates every 5-7 years; BUT the most common loan program is the 30-year fixed! Thus, many people are paying too high a rate for a 30-year program they will never need.

PROS AND CONS OF VARIOUS PROGRAMS

Loan Programs

Advantages

Disadvantages

Fixed Rate Mortgages

30 year fixed
15 year fixed

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• 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

Adjustable Rate Mortgages

10/1 ARM
7/1 ARM
5/1 ARM
3/1 ARM
1 year ARM
6 month ARM
1 month ARM

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• 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

• More risk
• Potential for payments to go up or down over time

Balloon Mortgages

15 year
5 year

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• Lower initial monthly payment
• Lower payment over a shorter 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
• Principal balance must be paid at the end of the balloon period.

Stated Income Programs

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• Don't need to verify income
• Faster approval

• Slightly higher rates
• Higher down payment in some cases

No point, No fee Programs

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• Lower closing costs
• Less money required to close

• Significantly higher rates
• Higher payments

Imperfect Credit Programs

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• 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

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• 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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AmLoan Center is a division of American Loan Center, Inc. CA Dept of Real Estate Broker ID # 01357682