Below is a brief synopsis and the pros and cons of some of today's
most popular mortgage loans.

TYPE

DEFINITION

ADVANTAGES

DRAWBACKS

COMMENTS

30-YEAR
FIXED RATE
A long-term loan in which principal and interest are amortized over 30 years; both interest rate and amount of monthly payment remain unchanged for life of the loan. -Considerable tax benefits, especially in early years.
-Payments never rise, regardless of inflation.
- Slow equity build-up. The most common mortgage in the U.S., a particularly good investment when rates are low.
15-YEAR
FIXED RATE
As above but payback period is 15 years. - Usually lower interest rate than 30-year.
-Faster equity build-up.
-Less interest paid out over life of loan.
- Higher monthly payments.
-Less tax-deductible interest.
An excellent option for middle aged and older buyers.
ARM
(Adjustable
Rate Mortgage)
A mortgage whose rate changes over time according to terms specified by the lender, usually according to short-term Treasury Bill rates. -Low initial interest rate, sometimes below market.
-Payments may decrease over time.
-Payments may increase over time.
-Risky if rates rise significantly.
Good option for buyers whose income will rise and/or when rates are expected to drop.
FHA/VA
MORTGAGE
LOANS
Government-insured or guaranteed mortgages that can make purchase more affordable than conventional loans. -Little or no down payment required.
-Marginally better rate than conventional 30-year mortgages.
- Lower limits on the maximum that can be borrowed.
-VA requires current or past military service.
Good option for first time buyers with little to invest in a down payment.
GPM
(Graduated
Payment
Mortgage)
A fixed rate mortgage offering low initial monthly payments that increase by a pre-determined amount, then level off after about five years. -More affordable payments for first few years.
-Unlike ARMs, buyer knows upfront how much payments will rise in future.
-Slower equity build-up.
-Buyer's income may not rise in proportion to payments.
Another good choice for buyers who expect income to rise substantially after home is purchased.
BALLOON
MORTGAGE
A short-term (3-5 years) loan, usually at a fixed rate, paid back in equal monthly payments and a final "balloon" payment for the remaining balance. -Lower monthly payments.
-Full tax benefits.
-Little or no equity build-up; monthly payments are often for interest only.
-Balloon payment usually requires refinancing or selling the house.
Designed for buyers who plan on moving within a few years and/or are confident in the short-term appreciation of a property.