What's Your Goal?

Choosing the right Loan for your lifestyle could have substantial impact on your retirement, your net worth and your family's future lifestyle. It is critical that you choose a loan program that fits your lifestyle needs as well as you future goals. Here are a few choices you may want to consider.

Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)

These increasingly popular ARMS -also called 3/1, 5/1, or 7/1 -can offer the best of both worlds. A lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable rate loan, based on then-current rates for the remaining 25 years. It's a good choice for people who expect to move or refinance, before or shortly after, the adjustment occurs.

Thirty-Year Fixed Rate Mortgage

The traditional 30-year fixed rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, adjustable rate loans are usually cheaper. As a rule of thumb, fixed rate loans may also be harder to qualify for than adjustable rate loans. When interest rates are low, fixed rate loans are generally not that much more expensive than adjustable rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.

Fifteen-Year Fixed Rate Mortgage

This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate and you'll own your home twice as fast.

The disadvantage is that, with a 15 year loan, you commit to a higher monthly payment.

Many borrowers opt for a 30 year fixed rate loan and voluntarily make larger payments that will payoff their loan in 15 years. This is often a safer approach than committing to a higher monthly payment, since the interest rate difference isn't that great.

This is a deferred interest loan that is very powerful and the most misunderstood program because of its many options. Basically, the lender allows the borrower to make monthly payments that are less than the accruing interest. Therefore, if the borrower chooses to make the minimum monthly payment, the loan balance will increase by the amount of interest not paid on the loan.

The power is in the borrower's ability to choose either making the full loan payment, the minimum payment, or any amount in between. If a borrower's income varies throughout the year (commissions, bonuses, etc.), the borrower can make the lesser payment during the "lean times", and make the higher payment when funds are readily available.