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Type Of Loan
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Pros
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Cons
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Fixed Rate
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- Rate and payment don’t increase over time
- 15, 30, 40 and 50 year available
- Usually easier to pay as time goes on due to inflation, job, etc.
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- Higher payments than other types of loans
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Interest Only
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- Includes interest only for initial term
- Much like fixed rate, the rate does not change over the life of the loan
- Cheaper stable payments than fixed
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- After initial period – usually 3, 5, 7 or 10 years – principle is included, making remaining payments higher
- Initial period does not pay off any principle
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Adjustable Rate (ARM)
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- Payments are usually lower initially
- Tied to “index” - if rates go down, payment goes down
- “Teaser” rates make initial payments for the first few months/years very affordable
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- Tied to “index” – if rates go up, payments go up
- Even if rates go down, “margin” is percentage lender can charge on top of rate
- Payments can be continuously altered due to interest rate fluctuation
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Negative Amortization
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- Payments are usually cheapest of all loan types
- You can choose which payment amount you want
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- If major payments aren’t made, principle increases over time, raising payments
- Over long period of time can eliminate all of equity in home
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FHA Mortgage
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- Options of fixed, interest only or adjustable rate
- As little as 3% down payment needed in some cases
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- Loan must be under $417,000
- Requires full documentation of income and assets
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Reverse Mortgage
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- Can use equity from home for future retirement or other bills
- Choice of lump sum, credit card style or monthly payouts
- You can never owe more than home
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- Has age requirement - 62+ years of age
- Amount allowed depending on several factors
- Large fees associated with process
- Equity in home can be depleted if you intend to sell in the future
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