- Never; Fully fixed for entire term
- Never; Fully fixed for entire term
- Usually after fixed period of 3, 5, 7 or 10 years
- After that, annual change typical
- Fully variable
- Typically changing at one-year intervals
- Some have shorter change intervals
- Never; Fully fixed for entire term
- Low, stable payment
- Usually easiest qualification
- Stable payments
- Builds equity faster
- Lower total interest costs than 30-year term
- Lower rates than fully fixed-rate mortgage
- Can sometimes borrow larger loan amount for same income
- Can have lowest interest rates
- Qualification may not depend upon today’s interest rate
- Often has lower interest rate/monthly payment over balloon period than fixed rate
- Similar to hybrid ARM
- Can have highest total interest cost over time
- User may “buy” more rate stability than actually needed, increasing cost
- Requires higher income to qualify
- Less affordable monthly payment
- Funds commited to payment cannot be used elsewhere
- Stable payment for a number of years, then unpredictable
- Rates can jump by as much as 6 percentage points at first adjustment
- Payments fluctuate at each rate change
- Unpredictable, rates can change as much as 2 percentage points at each adjustment
- Loan fully due and payable when balloon period ends
- Must be paid off or refinanced in unknown market conditions
- Consider Hybrid ARM with appropriate fixed period
- Consider 30-year term and prepaying loan to preserve cash-flow flexibility
- Consider Fixed rate mortgage or longest possible fixed period, if loan hold period not known
- Consider Hybrid ARM to ameliorate rate and payment risks for a given period
- Consider Hybrid ARM to ensure continued loan availability
- Purchasing a home
- First-time homebuyers
- Refinancing to improve cash flow/lower payment
- Refinancing to lower total interest cost
- Retiring mortgage more quickly
- Building or rebuilding equity more quickly
- Purchasing or refinancing when time horizon is seven years or shorter, and where borrower can handle increase in monthly payments
- Purchasing or refinancing when interest rates are near top of cycle, and are likely to fall, or sale or refinance is anticipated within three years
- Purchasing or refinancing when time horizon is three years or longer and home will be sold prior to end of balloon period
- Buying or refinancing a home and planning on owning for longer than 10 years
- Buying second home
- Refinancing to build equity
- Paying off mortgage before life event (retirement, etc)
- Buying a home and expect to move before fixed period ends, or know income will rise to offset payment risk, even in worst-case scenario
- Buying or refinancing when income can handle frequent payment changes and worst-case scenario for rates over a four-year period
- Buying a home and expect to move before balloon period ends, or have resources to pay off mortgage if refinance not available
- “Full cost” vs. “No cost” refinances, prepaying loan to shorten term if desired
- If 20-year term makes payment too high, whether 25-year term is available
- Interest rate caps, for first and subsequent adjustments, worst-case scenario
- A history of the Index the loan is keyed off, margin and caps
- Whether or not there is any built-in refinancing option when the balloon period ends